SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 1, 1996
[ ] Transaction Report Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
Commission File No. 1-9440
HARROW INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1499075
(State of Incorporation) (I.R.S. Employer Identification No.)
2627 East Beltline, S.E., Grand Rapids, MI 49546
Registrant's telephone number, including area code
(616) 942-1440
Securities registered pursuant to Section 12(b) of the Act:
$65,000,000 12-3/8% Senior Subordinated Debentures due 2002
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months with the Commission and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
<PAGE>
ITEM 1. BUSINESS
General
Through its subsidiaries and divisions, Harrow Industries, Inc. ("Harrow",
or the "Company") designs, manufactures and markets a wide variety of products
primarily for the consumer, home remodeling, commercial retrofit, new
residential and commercial construction, access control, and time and attendance
markets. The Company's major products include professional and consumer pruning
and harvesting hand tools, consumer and architectural hardware, electronic
locking systems, biometric identification devices, custom residential cabinetry
and water source heat pumps.
Harrow's business is affected by various general economic conditions,
including the rate of new construction, which is related to the availability and
cost of financing and other economic conditions. Management's strategy has been
to limit Harrow's sensitivity to changes in the economy by maintaining a
diversified product base and emphasizing the development of products marketed to
the commercial and home remodeling and do-it-yourself markets, which management
believes have historically been less sensitive to economic downturns. There can
be no assurances, however, that a significant decline in the rate of new
construction would not have a material adverse effect on Harrow's business.
Some of Harrow's operations have seasonal characteristics. This generally
produces lower results in Harrow's first and third fiscal quarters than in the
second and fourth quarters. Since most of its operations are driven by orders
received throughout the year, backlog is not a significant factor to Harrow's
overall business. The largest customer of Harrow, served by two unrelated
divisions, accounts for approximately 10% of consolidated net sales. No other
customer accounts for 5% or more of consolidated sales.
Segment Information
Harrow operates in three industry segments: (1) security products, (2)
hardware and tools, and (3) other building products.
Information concerning sales, operating income, identifiable assets and
certain other information by industry segment is found in Note P to the
Consolidated Financial Statements.
In accordance with management's philosophy that Harrow's operations be
decentralized and its subsidiaries and divisions be granted significant
autonomy, most aspects of the operations, including purchasing, engineering,
manufacturing and marketing are conducted locally. Management believes that this
philosophy permits its various businesses to respond more quickly to, and
operate more effectively in, the markets they serve. Following is a description
of the businesses operating in each of the three industry segments.
<PAGE>
Security Products Group
Locknetics Security Engineering
Locknetics Security Engineering ("LSE") located in Forestville,
Connecticut, designs, manufactures and distributes electronic locking systems
including electromagnetic and electromechanical security products and systems
primarily for security system wholesalers, contract hardware, locksmith dealers,
alarm wholesalers and automatic door operator manufacturers.
LSE products are sold through its own sales force and manufacturers'
representatives.
Recognition Systems, Inc.
Recognition Systems, Inc. ("RSI"), acquired as of the beginning of fiscal
1995, is located in Campbell, California and was founded in 1986 with a charter
to develop, manufacture and market biometric identification devices based upon
the measurement of three dimensional hand geometry by using a sophisticated
combination of infrared cameras, electronic circuitry and associated algorithms.
RSI sells its products into three markets - access control, time and
attendance and personal identification - through a nationwide network of sales
representative agencies. International sales are made to authorized country
distributors who resell within their territories.
Hardware and Tools Group
H.B. Ives
H.B. Ives ("Ives"), Harrow's largest operation, is headquartered in
Wallingford, Connecticut with manufacturing and distribution facilities in New
Haven, Connecticut and Michigan City, Indiana, and a distribution center in Los
Angeles, California. A significant increase or decrease in Ives' operating
performance could have a material effect on Harrow's overall performance.
Ives manufactures a broad line of commercial and consumer hardware
including entry sets, door coordinators, exterior door hardware, door stops,
surface bolts, and cabinet and bath hardware. Through a separate operation, Ives
also manufactures wire products and storage hooks.
Sales to the consumer residential hardware market are direct in the case of
some large customers, and through independent wholesalers to other customers who
are serviced by manufacturers' representatives. Ives sells to the contractor
hardware market through distributors serviced by its own sales force.
<PAGE>
Corona Clipper
Corona Clipper ("Corona"), located in Corona, California, designs,
manufactures and distributes pruning and harvesting tools, shears, saws and
other hand-held gardening tools for homeowners and nurseries. A line of high
quality professional pruning and harvesting tools is sold for agricultural
applications in the grape, avocado and apple industries as well as to
distributors that service professional landscapers.
Corona sells to the retail market through a combination of in-house
salespeople and manufacturers' representatives. Its customers include mass
merchandisers, home improvement centers, hardware chains and various lawn and
garden distributors. The professional market for pruning tools is served through
a combination of in-house salespeople and manufacturers' representatives.
Other Building Products Group
Rutt
Rutt, located in Goodville, Pennsylvania, is a leading manufacturer of high
quality custom kitchens, bath and other cabinetry primarily to the home
renovation markets. Rutt is perceived to be the quality leader in the custom
residential cabinet market.
Rutt's cabinetry is made to order and is of such high quality that Rutt
receives, through the efforts of its own sales force, extensive representation
by dealers in affluent residential areas of the country. Rutt currently has
products on display in over 130 authorized dealer locations. Approximately 80%
of Rutt's sales are to the home renovation market.
FHP Manufacturing
FHP Manufacturing ("FHP"), located in Fort Lauderdale, Florida, is one of
the largest manufacturers of water source heat pumps in the United States. These
units are sold throughout North America under the trade name Florida Heat Pump.
FHP is a leader in heating and cooling technology that uses the energy
available in natural water supplies. Tests show that FHP units can save from 30%
to 50% of the energy used by conventional units, which offsets the higher
capital and installation costs of FHP equipment for customers with certain
levels of heating and cooling requirements.
FHP sells through manufacturers' representatives to large mechanical
contractors and through multi-branch stocking distributors who in turn sell to
smaller dealers. FHP acts as its own distributor in southern Florida.
<PAGE>
Employees
As of January 1, 1997, Harrow employed 1165 employees, including 923 in
production (management and hourly), 105 in marketing and sales, and 137 in
finance and administration. During the year, hourly production employees can
increase by as many as 60 employees, depending on seasonal workloads in some
Harrow plants.
ITEM 2. PROPERTIES
The following table sets forth the facilities of Harrow, excluding public
warehouse space, by location and operation. Each location (except the facilities
designated as warehouses and sales showrooms) include administrative offices:
<TABLE>
Location of Owned Leased
Division/Subsidiary (Square Ft.) (Square Ft.) Use
<S> <C> <C> <C>
Grand Rapids, MI -- 4,264(1) Corporate Offices.
New Haven, CT 100,000 -- Manufacture of builder and consumer
(H.B. Ives) hardware, warehouse and shipping facilities.
Wallingford, CT -- 46,700(1) Sales office and warehouse and shipping
(H.B. Ives) facilities.
Michigan City, IN 69,000 -- Manufacture of wire hardware,
(H.B. Ives) warehouse and shipping facilities.
Forestville, CT -- 30,000(1) Manufacture of electronic locking
(LSE) systems and accessories, warehouse and
shipping facilities.
Goodville, PA 174,843 -- Manufacture of custom cabinetry,
(Rutt) warehouse and shipping facilities.
Los Angeles, CA -- 2,668(1) Sales showroom sublet to independent
(Rutt) dealer.
Atlanta, GA -- 1,958(1) Sales showroom sublet to independent
(Rutt) dealer.
Chicago, IL -- 3,451(1) Sales showroom sublet to independent
(Rutt) dealer.
Fort Lauderdale, FL 63,600 -- Manufacture of heat pumps, warehouse
(FHP) and shipping facilities.
<PAGE>
Corona, CA 73,000 -- Manufacture of pruning tools and other
(Corona Clipper) forged products, warehouse and shipping
facilities.
Campbell, CA -- 13,694(1) Manufacture of biometric identification
(RSI) devices, warehouse and shipping
facilities.
</TABLE>
(1) Lease Terms:
Grand Rapids, MI--Annual Rental $54,366--expiration March 31, 1997.
Wallingford, CT--Annual Rental $252,180--expiration December 31, 2002.
Forestville, CT--Annual Rental $183,000--expiration May 31, 2008. Los
Angeles, CA--Annual Rental $72,481--expiration March 31, 2005;
Sub-lease Rental $72,481--expiration March 31, 2005.
Atlanta, GA--Annual Rental $42,321--expiration April 30, 2000;
Sub-lease Rental $42,321--expiration April 30, 2000.
Chicago, IL--Annual Rental $85,861--expiration November 30, 2005;
Sub-lease Rental $85,861--expiration November 30, 2005.
Campbell, CA--Annual Rental $128,176--expiration September 30, 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in proceedings with respect to environmental
matters including sites where the Company has been identified as a potentially
responsible party under federal and state environmental laws and regulations.
While it is not possible to quantify with certainty the potential impact of
actions regarding environmental matters, particularly any future remediation and
other compliance efforts, in the opinion of management, compliance with the
present environmental protection laws will not have a material adverse effect on
the financial condition or competitive position of the Company. However, the
Company's efforts to comply with increasingly stringent environmental
regulations may have an adverse effect on the Company's future earnings.
Provisions of $453,000 in 1996, $428,000 in 1995, and $484,000 in 1994 were
recorded to cover the costs of remedial actions expected to be taken with
respect to the cleanup of these sites. As of December 1, 1996, the remaining
recorded liability related to these issues totaled $766,000, of which $375,000
was provided to cover estimated remediation costs of a former plant site. Annual
remediation costs for this site currently approximate $75,000, and remediation
is expected to be completed in as few as three years or as many as twenty years.
The Company is also subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
consolidated financial position of the Company.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is not registered nor is it publicly traded. See
Item 12 for information concerning the distribution of ownership of the
Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Fiscal Year Ended (1)
December 1, December 3, November 27, November 28, November 29,
1996 1995 1994 1993 1992
(Thousands of Dollars, Except Per Share Data and Ratios)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales ................... $ 151,747 $ 134,657 $ 139,393 $ 128,823 $ 124,679
Net earnings (loss) ......... 5,315 3,403 1,615 (226) 205
Net earnings (loss) per
share of common stock (2) 4.76 2.91 1.29 (.41) .01
Ratio of earnings to fixed
charges (3) .............. 2.24x 1.63x 1.37x 1.03x 1.06x
Balance sheet data:
Total assets ................ $ 74,720 $ 68,989 $ 61,378 $ 58,622 $ 59,143
Long-term debt and other
noncurrent liabilities (4) 56,295 52,510 50,337 50,088 51,132
Stockholders' equity
(deficit) (5) ............ 536 (399) (3,730) (5,122) (4,701)
</TABLE>
(1) Fiscal 1995 includes 53 weeks; all other fiscal years shown include 52
weeks.
(2) Earnings per share of common stock are calculated based on weighted
average outstanding shares of 1,074,046 in 1996, 1,100,000 in 1995,
1,096,671 in 1994, 1,043,340 in 1993 and 999,994 in 1992.
(3) Earnings used in computing the ratio of earnings to fixed charges consist
of pretax earnings before fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs and the interest portion
of rental expense.
(4) Includes current maturities of long-term debt, capital lease obligations
and redeemable preferred and common stock.
(5) Includes the effects of the restructuring transactions which occurred in
1987, as described in Note N to the Consolidated Financial Statements.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's cash requirements relate primarily to the seasonal financing
of working capital, the purchase of property, plant and equipment, business
acquisition opportunities, the servicing of outstanding debt and cash dividends.
Cash provided by operating activities continues to be the major source of the
Company's funds and is expected to satisfy a substantial portion of future cash
needs. These funds have been augmented by long-term debt under a revolving
credit agreement.
Cash provided by operating activities totaled $5.7 million in 1996 as
compared to $6.4 million in 1995 and $3.2 million in 1994. Cash provided by
operating activities before considering changes in working capital totaled $8.2
million in 1996, $5.2 million in 1995 and $4.8 million in 1994 reflecting a
continuous improvement in net earnings. Increased investments in accounts
receivable and inventories were required in each year as a result of growth in
the Company's businesses. These investments were partially funded in 1996 and
1994 by related increases in accounts payable and accrued expenses. Similar
increases in 1995 were more than adequate to fund the 1995 increase in accounts
receivable and inventories. Working capital at December 1, 1996 was $18.6
million compared to $13.3 million at the end of fiscal 1995. The Company's
current ratio of 2.0 to 1 at the end of 1996 improved slightly from 1.8 to 1 at
the end of 1995.
Capital expenditures were $3.1 million in 1996, $3.6 million in 1995 and
$4.3 million in 1994. The expenditures were primarily for replacement, cost
reduction and capacity expansion. Capital additions for 1997 are expected to
approximate $8 million and will be primarily for capacity expansion, new
products, profit improvement and replacement.
On June 14, 1996, the Company redeemed its 14% Junior Subordinated
Debentures in the amount of $7 million from proceeds available under its
revolving credit facility. Under the terms of the revolving credit agreement,
which was renegotiated effective July 31, 1996, the Company may borrow up to
$30,000,000 under a formula which includes an amount based on qualified accounts
receivable and inventories, plus a term loan amount initially established at
$15,000,000. As of December 1, 1996, the available unused credit under the
agreement approximated $8,100,000. The agreement also provides for a standby
credit facility of $15,000,000 to finance possible future acquisitions.
The Senior Subordinated Debentures require annual sinking fund payments;
however, as a result of current and prior year repurchases of debentures, no
principal maturities are due until 2001, when $6.5 million is due.
Effects of Inflation
The Company believes inflation has not had a material overall effect on its
operations during the past three years.
<PAGE>
Results of Operations - 1996 Compared to 1995
Consolidated net sales increased by 12.7% from $134.7 million in 1995 to
$151.7 million in 1996. Net sales of the security products segment increased by
14.4% from $20.2 million in 1995 to $23.2 million in 1996 due primarily to
increased sales of commercial security products. Net sales of the hardware and
tools segment increased by 12.3% from $75.0 million in 1995 to $84.2 million in
1996. Both major product lines experienced sales gains, however, the percentage
increase in sales of consumer, building and architectural hardware was more
modest than the increase for consumer and professional pruning and harvesting
tools. Net sales for the other building products segment increased by 12.5% from
$39.4 million to $44.4 million in 1996. All product lines in this segment
experienced sales increases although the percentage for custom cabinetry was
somewhat greater than that of water source heat pumps.
Gross margin increased from $49.0 million in 1995 to $55.6 million in 1996.
As a percentage of net sales, gross margin increased from 36.4% in 1995 to 36.6%
in 1996. Higher sales volume, a favorable workers compensation insurance
experience adjustment, and improved manufacturing efficiencies contributed to
the gross margin improvement. Offsetting these factors were lower margins on
sales of certain consumer pruning tools and higher warranty costs which affected
custom cabinetry gross margins.
Selling, administrative and general expenses increased 6.4% from $38.0
million in 1995 to $40.4 million in 1996. Commission and other volume related
costs comprise a significant portion of the increase. Engineering and product
development costs also contributed to the increase. These increases were reduced
by $500,000 to reflect an insurance recovery of prior period environmental
remediation and related costs. Selling, administrative and general expenses
include provisions of $1.0 million in 1995 and $500,000 in 1996 to provide for
estimated postemployment benefits and certain other costs related to the
Company's president and chief executive officer. As a percentage of net sales,
selling, administrative and general expenses decreased from 28.2% in 1995 to
26.6% in 1996.
Operating income increased $4.1 million from $11.0 million in 1995 to $15.1
million in 1996. Operating income as a percentage of net sales improved to 10.0%
in 1996 compared to 8.2% in 1995.
Interest expense decreased from $6.6 million in 1995 to $6.4 million in
1996 due primarily to lower average interest rates resulting from the redemption
of subordinated debentures and the renegotiation of the Company's revolving
credit agreement.
A gain from the sale of the Leigh businesses of $270,000 is included in
other income in 1995.
Earnings before income taxes increased by 92.5% to $8.8 million in 1996
compared to $4.6 million in 1995 due primarily to increased sales and resulting
operating income.
The 1996 provision for income taxes exceeds the amount expected using the
<PAGE>
statutory rate of 34% due primarily to state income taxes and the tax effect of
nondeductible goodwill amortization. The 1995 provision for income taxes was
less than the expected amount due to a tax benefit from the sale of the Leigh
businesses and an adjustment to reduce prior years' estimated liabilities as a
result of the expiration of the statute of limitations for fiscal 1991.
Net earnings were $5.3 million ($4.76 per share) in 1996 compared to $3.4
million ($2.91 per share) in 1995.
Results of Operations - 1995 Compared to 1994
The comparability of operating results is affected by the acquisition of
RSI (see Note K to the consolidated financial statements) and the sale of the
Leigh businesses (see Note L). Operating results of the Leigh businesses are
included in consolidated results for 1994 and, except for the gain on the sale,
excluded from 1995 consolidated results.
Consolidated net sales decreased from $139.4 million in 1994 to $134.7
million in 1995. Net sales of the security products segment increased 58.3% from
$12.8 million in 1994 to $20.2 million in 1995 due to increased sales of
commercial security products and the addition of hand reader sales resulting
from the acquisition of RSI. Net sales of the hardware and tools segment
increased by 10.0% from $68.2 million in 1994 to $75.0 million in 1995. Both
major product lines experience sales gains, however, the percentage increase in
sales of consumer, building and architectural hardware was more modest than the
increase for consumer and professional pruning tools. Net sales for the other
building products segment decreased from $58.4 million to $39.4 million. Net
sales of continuing product lines (excluding air control and other products
related to the Leigh businesses from 1994 amounts) increased by $5.2 million or
15.2% in 1995. All continuing product lines in this segment experienced sales
increases although the percentage sales gain of custom cabinetry was somewhat
greater than that of water source heat pumps.
Gross margin increased from $46.3 million in 1994 to $49.0 million in 1995.
As a percentage of net sales, gross margin increased from 33.2% in 1994 to 36.4%
in 1995. The elimination of the lower margin Leigh businesses combined with the
acquisition of RSI contributed significantly to the improvement in gross margin
percentages. Higher sales volume of other product lines, a favorable workers
compensation insurance experience adjustment, and improved manufacturing
efficiencies, particularly for custom cabinetry and pruning and harvesting
tools, also contributed to the gross margin improvement. Offsetting these
factors were aluminum, brass and copper cost increases which affected builder
and consumer hardware gross margins.
Selling, administrative and general expenses increased by 1.1% from $37.6
million in 1994 to $38.0 million in 1995. As a percentage of net sales, selling,
administrative and general expenses increased from 26.9% in 1994 to 28.2% for
1995. Selling, administrative and general expenses for 1995 decreased by $5.7
million as a result of the sale of the Leigh businesses. This decrease was more
than offset by the addition of RSI expenses, volume-related increases for all
<PAGE>
other operations and a provision of $1.0 million to provide for estimated
postemployment benefits and certain other costs related to the Company's former
chairman and its former president and chief executive officer.
Operating income increased $2.2 million from $8.8 million in 1994 to $11.0
million in 1995. Operating income as a percentage of net sales improved to 8.2%
in 1995 compared to 6.3% in 1994.
Interest expense increased from $6.3 million in 1994 to $6.6 million in
1995 due primarily to higher average borrowings under the revolving credit
agreement.
Earnings before income taxes was $4.6 million in 1995 compared to $2.6
million in 1994. The increase of $2.0 million was due primarily to improved
operations offset partially by increased interest expense. A gain from the sale
of the Leigh businesses of $270,000 is included in other income and also
contributed to the increase.
The 1995 provision for income taxes was less than the amount expected using
the statutory federal income rate of 34% due to the tax effects of the Leigh
sale, an adjustment to reduce prior years' estimated liabilities as a result of
the expiration of the statute of limitation for fiscal 1991 and the realization
of certain export incentives. These reductions more than offset the provision
for state income taxes and the tax effect of nondeductible items (principally
goodwill amortization). The Company's effective income tax rate for 1994 was
higher than the statutory rate due primarily to state income taxes, the effect
of nondeductible goodwill amortization and the inability to utilize foreign net
operating losses.
Net earnings were $3.4 million ($2.91 per share) in 1995 compared to $1.6
million ($1.29 per share) in 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of Harrow Industries, Inc. and subsidiaries
as of December 1, 1996 and December 3, 1995, and the related consolidated
statements of stockholders' equity (deficit), operations and cash flows for each
of the three fiscal years in the period ended December 1, 1996, and the notes
thereto, are included with the financial statement schedules in a separate
section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers and directors of the Company. Officers serve at the pleasure of the
Board of Directors. Directors serve until the election and qualification of
their successors.
<TABLE>
Name Age Position
<S> <C> <C>
Donald G. Calder (1) 59 Chairman, Chief Executive Officer and Director
James S. Dahlke 46 President and Director
George L. Ohrstrom, Jr. (1) 69 Vice President and Director
John S. Hogan 42 Vice President, Chief Financial Officer and
Treasurer
Gary L. Humphreys 54 Vice President and Corporate Controller
Donald D. Fenstermacher 55 Vice President of Management Information
Services
Betsy F. Raymond 38 Vice President of Human Resources and
Secretary
Robert A. Hoagland 58 President of H.B. Ives
Jerry D. Price 50 President of Rutt
Clifford A. Young, Jr. 54 President of FHP Manufacturing
James J. Scott 44 President of Locknetics Security Engineering
James C. McGovern 54 President of Corona Clipper
William W. Wilson 71 President of Recognition Systems, Inc.
W. Lawrence Banks (1) (2) 58 Director
David H. Benson 59 Director
Derrick N. Key 49 Director
George F. Ohrstrom (1) (2) 43 Director
Georg Graf Schall-Riaucour (3) 56 Director
Eriberto R. Scocimara 60 Director
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Chairman of Audit Committee.
</TABLE>
<PAGE>
Donald G. Calder has been a director since 1972 and a Vice President of
Harrow or its predecessor from 1972 through August 1989. On January 30, 1997,
Mr. Calder was appointed Chairman and Chief Executive Officer of the Company.
Mr. Calder has been a partner at G.L. Ohrstrom & Co. since 1970 and devotes a
substantial amount of his time in connection therewith. He is a director of
Carlisle Companies Incorporated, Central Securities Corporation, Brown-Forman
Corporation, Roper Industries, Inc. and several privately held companies.
James S. Dahlke was appointed President and Chief Operating Officer of the
Company on June 17, 1996. Mr. Dahlke was appointed as a Director of the Company
on January 30, 1997. Prior to joining Harrow, Mr. Dahlke served as President,
Chief Executive Officer and Director of Medalist Industries, Inc. from 1995 to
1996, and was President of the Waukesha Fluid Handling unit of United Dominion
Industries from 1988 to 1995.
George L. Ohrstrom, Jr. has been a director and a Vice President of Harrow
or its predecessor since 1962. Mr. Ohrstrom is President of G.L. Ohrstrom & Co.,
Inc., and was managing partner of its predecessor, G.L. Ohrstrom & Co., from
1960 to October 1996. He is a director of Carlisle Companies Incorporated and
Roper Industries, Inc. Mr. Ohrstrom is the father of George F. Ohrstrom.
John S. Hogan was appointed Vice President and Chief Financial Officer in
January 1990 and has been Treasurer of Harrow since January 1987. From 1979 to
January 1987 he was Corporate Accounting Manager of Harrow or its predecessor.
Prior to joining Harrow he had been on the audit staff of Ernst & Young LLP, the
Company's independent auditors.
Gary L. Humphreys joined Harrow in October 1994 as Vice President and
Corporate Controller. Mr. Humphreys was a partner of Ernst & Young LLP, the
Company's independent auditors, from October 1976 to September 1994.
Donald D. Fenstermacher joined Harrow in 1984 as Director of Management
Information Services. He was elected Vice President effective May 1, 1990.
Betsy F. Raymond joined Harrow in 1991 as Vice President of Human Resources
and Assistant Corporate Secretary and was elected Corporate Secretary effective
February 1, 1992.
Robert A. Hoagland has been President of H.B. Ives since 1991.
Jerry D. Price joined Harrow as President of Rutt effective in July 1993.
Prior to joining Harrow, he was group Vice President of Manufacturing for TJ
International and Executive Vice President-Operations for Biltbest Windows.
Clifford A. Young, Jr. has been President of FHP since 1971.
James J. Scott has been President of Locknetics Security Engineering since
1989.
<PAGE>
James C. McGovern joined Harrow as President of Corona Clipper on May 20,
1992. Prior to joining Harrow he was President of Aluminum Forge Company.
William W. Wilson was named President of the Company's Recognition Systems,
Inc. subsidiary in October of 1996. He served as RSI's Vice President of Sales
and Marketing from 1990 to June of 1995 and provided business development
services to RSI as a consultant from July of 1995 until his appointment as
President.
W. Lawrence Banks has been a Director of the Company since 1980. Mr. Banks
has been a director of Robert Fleming & Co., Limited, an English merchant
banking firm, for more than five years and is a Deputy Chairman thereof, and he
is Chairman of Robert Fleming, Inc., its U.S. investment banking subsidiary. Mr.
Banks is also a director of Roper Industries, Inc.
David H. Benson has served as a director of Harrow since 1980. He is a
merchant banker at Kleinwort Benson Limited, an English merchant banking firm.
Derrick N. Key has been a director of the company since February 1996. Mr.
Key has been a director and Chief Executive Officer of Roper Industries, Inc.
since December 1991. He is also a director of two private companies.
George F. Ohrstrom has been a director of Harrow since 1986. From 1983 to
1987, he was an associate at Bear, Stearns & Co., Inc. Since December 1987, he
has been a partner of G.L. Ohrstrom & Co.
Georg Graf Schall-Riaucour was appointed to the Board of Directors on
January 25, 1995. He has been general manager of Wittelsbacher Ausgleichsfonds
since May 1994, prior to which, since 1971 he was senior partner of the Munich,
Germany law firm of Stever & Belten. Mr. Schall-Riacour is director of Roper
Industries, Inc. and several privately held U.S. companies.
Eriberto R. Scocimara has been a director of Harrow or its predecessor
since 1972. Mr. Scocimara has been President and Chief Executive Officer of the
Hungarian-American Enterprise Fund, a privately-managed investment company,
since April 1994, and he has been the President of Scocimara & Company, Inc., an
investment management company, since 1984. Mr. Scocimara was a partner of G.L.
Ohrstrom & Co. from 1969 to 1984. Mr. Scocimara is a director of Carlisle
Companies, Incorporated, Roper Industries, Inc., Quaker Fabric Corporation and
several privately owned companies.
<PAGE>
ITEM 11. SUMMARY COMPENSATION TABLE
The following table sets forth cash compensation earned during the fiscal
year ended December 1, 1996 for the chief executive officer and the other four
most highly compensated executive officers whose aggregate cash compensation
exceeded $100,000.
<TABLE>
Annual Compensation Long-Term
Name and Principal Fiscal Year Salary Bonus Compensation*
Position Ended $ $ $
<S> <C> <C> <C> <C>
Donald G. Calder ...... 1996 149,000 --
Chairman and CEO
Dudley C. Mecum ....... 1996 96,000 --
Former Chairman and CEO 1995 16,000 --
Robert A. Hoagland .... 1996 170,500 130,092
President of H.B. Ives 1995 165,500 102,362
1994 159,100 119,325
Clifford A. Young, Jr . 1996 155,000 131,750 58,022
President of FHP ...... 1995 149,700 127,245 12,280
1994 143,900 122,315 22,766
John S. Hogan ......... 1996 144,500 122,825 28,485
Vice President & CFO .. 1995 140,300 100,525 20,743
1994 135,600 94,445 4,103
James C. McGovern ..... 1996 131,100 109,731
President of Corona ... 1995 126,700 107,695
1994 123,000 87,453
James S. Dahlke ....... 1996 115,385 62,500
President and COO
</TABLE>
*Payments from Long-Term Growth Account were for the purchase of performance
shares under the prior bonus plan. Performance shares were last awarded for
fiscal 1990. Final payments under the prior plan were made in February 1996.
All directors are compensated at $7,500 per annum in their capacity as
directors of the Company. Mr. Banks is compensated an additional $7,500 for his
involvement in various committees. Members of the Audit Committee receive $500
per meeting. The Chairman of the Audit Committee receives $750 per meeting.
<PAGE>
Dudley C. Mecum was Chairman and CEO from October 1, 1995 until his
resignation on October 8, 1996. Donald G. Calder was acting Chairman from that
date until January 30, 1997 when he was elected Chairman and CEO.
James S. Dahlke was granted options in 1996 to purchase an aggregate of
20,000 shares of common stock, 4,000 shares of which were immediately vested and
exercisable, and 16,000 shares which vest and become exercisable ratably from
1997 through 2000 at 4,000 shares per year.
Compensation Plans
Bonus Plan
Harrow maintains an Executive/Middle Management Performance Program (the
"Bonus Plan") in which officers (with the exception of George L. Ohrstrom, Jr.
and Donald G. Calder) and presidents of divisions and subsidiaries of Harrow
designated by the president of Harrow are eligible. An individual is eligible
only if he is a full-time employee for the full 12 months of the fiscal year
covered by the Bonus Plan.
The Bonus Plan includes an annual (the "Annual Plan") component and a
long-term (the "Long-Term Plan") component. Under the Annual Plan, participants
may earn a cash bonus of up to 55% of base salary, based upon a comparison of
actual results with financial and nonfinancial goals established for the year.
The incentive to be earned ranges from 16% to 55% of salary, if results equal
85% of established goals to 110% or more of goals.
The Long-Term Plan provides incentive compensation for achievement of three
year objectives. Under the Long-Term Plan participants may earn a cash bonus of
up to 30% of base salary based upon aggregate profitability (60% of total) and
individual nonfinancial strategic objectives (40% of total). The financial
portion of the bonus is based upon a comparison of three year actual results
with operating income targets.
Retirement Plans
Harrow Products, Inc., an indirect subsidiary of the Company, maintains a
retirement plan, the Retirement Plan for the Employees of Harrow Products, Inc.,
("the HPI Retirement Plan") in which all eligible employees participate. It is a
non-contributory, defined benefit pension plan, under which a participant with a
vested benefit receives a benefit at age 65 equal to 1.075% of Final Average
Salary up to covered compensation, plus 1.7% of Final Average Salary in excess
of covered compensation, times credited service (maximum of 30 years.) "Covered
Compensation" is the average of 35 years of Social Security wage bases ending in
the year of Social Security Retirement age. "Final Average Salary" means salary
excluding bonuses, overtime or any other additional or non-recurring
compensation and is computed using the highest 60 of the last 120 months of
service prior to retirement, or age 65, whichever is earlier. Credited Service
starts at age 21 and Vesting Service at age 18. Employees retiring after age 55,
but before age 65 receive reduced annual benefits. Benefits under the HPI
Retirement Plan vest after five years of Vesting Service.
<PAGE>
The table below shows the approximate annual retirement benefits payable to
executive officers for life from normal retirement date (age 65) pursuant to the
Retirement Plan. For purposes of determining the pension benefits payable under
the HPI Retirement Plan, estimated years of Credited Service at age 65 under the
HPI Retirement Plan for the individuals named in the compensation table are as
follows: Mr. Calder, 29 years; Mr. Hoagland, 13 years; Mr. Young, 30 years; Mr.
Hogan, 30 years; Mr. McGovern, 17 years.
<TABLE>
Final
Average Years of Service
Earnings* 10 15 20 25 30
<S> <C> <C> <C> <C> <C>
$100,000 $15,300 $22,900 $30,600 $38,200 $45,800
125,000 19,600 29,300 39,100 48,900 58,600
150,000 23,800 35,700 47,600 59,500 71,400
175,000 27,600 41,600 55,700 69,400 83,700
200,000 31,500 47,600 63,700 79,900 96,000
225,000 34,400 52,200 69,900 87,700 105,500
250,000 34,400 52,200 69,900 87,700 **
275,000 34,400 52,200 69,900 87,700 **
300,000 34,400 52,200 69,900 87,700 **
</TABLE>
*Earnings used to calculate benefits are capped by the limit described in
Section 401(a)(17) of the Internal Revenue Code; the limit for 1996 is $150,000.
**Benefit is limited by Section 415 of the Internal Revenue Code; the limit for
1996 is $120,000.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as to the number of
shares of Harrow common stock beneficially owned as of the date of this report
by each stockholder known to Harrow to own beneficially more than 5% of the
outstanding shares for such common stock, by each director and by all officers
and directors as a group. Except as otherwise indicated, each of the
stockholders named below has sole voting and investment power with respect to
the shares of common stock beneficially owned by him.
<TABLE>
Company Common
Stock Number
of Shares
Name and Address of Beneficial Owner Beneficially Owned Percentage
<S> <C> <C>
Blackburn Fund, Ltd. 52,643 5.52%
P.O. Box 10654
Tampa, FL 33674
Citicorp Venture Capital, Ltd. 57,429 6.03%
153 East 53rd Street
New York, NY 10043
Robert Fleming and Co. Ltd. 126,788 (1) (2) 13.30%
25 Copthall Avenue
London EC2R 7DR
England
Guarantee Reassurance 76,642 8.04%
Corporation
P.O. Box 550640
Jacksonville, FL 32255
Wittelsbacher Ausgleichsfonds 51,992 (5) 5.46%
Schumannstrasse 10
D81679 Munchen
Federal Republic of Germany
W. Lawrence Banks 1,000 (2) *
David H. Benson 1,520 *
Donald G.Calder 22,632 (3) 2.37%
Gary L. Humphreys 5,000 *
John S. Hogan 26,000 2.73%
<PAGE>
George F. Ohrstrom 7,761 *
George L. Ohrstrom, Jr. 29,914 (4) 3.14%
Betsy F. Raymond 11,692 1.23%
Georg Graf Schall-Riaucour (5)
Eriberto R. Scocimara 28,526 (6) 2.99%
All Directors and Officers as a group 152,545 (7) 16.01%
*Less than 1%.
</TABLE>
(1) The Company has entered into four separate agreements with Robert Fleming &
Co. Limited ("Fleming"), dated April 23, 1996, June 14, 1996, August 28, 1996
and January 2, 1997, respectively, each of which granted the Company certain
options to purchase shares of stock of the Company (66,150 shares of common
stock in the April 23, 1996 Agreement, 16,000 shares of common stock in the June
14, 1996 Agreement, 80,436 shares of junior preferred stock and 112,706 shares
of common stock in the August 28, 1996 Agreement, and 39,000 shares of the
junior preferred stock and 78,902 shares of the common stock in the January 2,
1997 Agreement.) Fleming purchased the shares of stock covered by the Agreements
from certain current and/or former officers or directors (or affiliates or
family members thereof) of the Company. Fleming holds deposits made by the
Company which can be used to offset the purchase price payable upon the exercise
of the options. As of February 28, 1997, the options granted in the April 23,
1996 Agreement, the June 14, 1996 Agreement and the options with respect to
80,436 shares of the junior preferred stock and 64,820 shares of the common
stock covered by the August 28, 1996 Agreement have been exercised by the
Company, for a total purchase price of $3,195,000, and such shares of stock are
now treasury stock of the Company. It is the current intention of the Company to
exercise the remaining options contained in the aforementioned agreements as and
when they are exercisable, assuming the conditions precedent have been
fulfilled.
(2) W. Lawrence Banks, a director of the Company, is the Deputy Chairman of
Robert Fleming & Co., Limited, and as such, has voting and investment power on
these shares. Mr. Banks disclaims any beneficial interest in the shares.
(3) Does not include total of 28,511 shares owned by his wife and his wife as
custodian for minor children and in which he disclaims any beneficial ownership.
(4) Includes 631 shares held in a trust of which he is a co-fiduciary sharing
voting and investment powers and in which he disclaims any beneficial interest.
(5) Georg Graf Schall-Riaucour, a director of the Company, is the general
director of Wittelsbacher Ausgleichsfonds, and as such, is authorized to vote
and dispose of such shares. Mr. Schall-Riaucour disclaims any beneficial
interest in the shares.
<PAGE>
(6) Does not include 10,500 shares owned by his wife, and in which he disclaims
any beneficial ownership.
(7) Does not include disclaimed shares referred to in Notes (2), (3), (5) or
(6).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
a) 1 and 2. List of Financial Statements and Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report.
3. Exhibit Index:
Reference is made to the Exhibit Index which is found as a
separate section of this report.
b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the fourth quarter
of the fiscal year ended December 1, 1996.
c) Exhibits:
Exhibits pertaining to this Form 10-K are submitted as a
separate section of this report.
d) Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 28th day of February, 1997.
HARROW INDUSTRIES, INC.
(Registrant)
By /s/Donald G. Calder
Donald G. Calder
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons in the capacities indicated on
the 28th day of February, 1996:
Signature Title
/s/Donald G. Calder Chairman of the Board
Donald G. Calder (Chief Executive Officer)
/s/James S. Dahlke President and Director
James S. Dahlke
/s/John S. Hogan Treasurer
John S. Hogan (Chief Financial Officer)
/s/Gary L. Humphreys Controller
Gary L. Humphreys (Chief Accounting Officer)
Director
W. Lawrence Banks
/s/David H. Benson Director
David H. Benson
<PAGE>
/s/George F. Ohrstrom Director
George F. Ohrstrom
Director
George L. Ohrstrom, Jr.
/s/Eriberto R. Scocimara Director
Eriberto R. Scocimara
/s/Georg Graf Schall-Riaucour Director
Georg Graf Schall-Riaucour
/s/Derrick N. Key Director
Derrick N. Key
<PAGE>
(THIS PAGE LEFT BLANK INTENTIONALLY.)
<PAGE>
Exhibit Index
Page
*3.1 Certificate of Incorporation ..................................
**3.2 By laws........................................................
**4.1 Indenture with United States Trust Company of New York.........
4.3 Loan and Security Agreement with Fleet Capital Corporation..... 51
**10.1 Securities Purchase Agreement..................................
***10.3 Harrow Industries, Inc. Executive/Middle Management
Performance Plan..............................................
**10.4 Harrow Products, Inc. Retirement Plan..........................
**10.6 Deferred Compensation Agreement between Harrow Products, Inc.
and Stanley B. O'Kane.........................................
10.8 Employment Agreement with James S. Dahlke......................119
10.9 Employment Agreement with Donald D. Fenstermacher..............122
10.10 Employment Agreement with John S. Hogan........................127
10.11 Employment Agreement with Gary L. Humphreys....................132
10.12 Employment Agreement with Betsy F. Raymond.....................137
10.13 Option Agreement, dated April 23, 1996, between Robert
Fleming & Co. Limited and Harrow Industries, Inc..............142
10.14 Option Agreement, dated June 14, 1996, between Robert
Fleming & Co. Limited and Harrow Industries, Inc..............153
10.15 Option Agreement, dated August 28, 1996, between Robert
Fleming & Co. Limited and Harrow Industries, Inc..............154
10.16 Option Agreement, dated December 31, 1996, between
Robert Fleming & Co. Limited and Harrow Industries, Inc.......167
11 Computation of earnings per share..............................176
12 Computation of ratio of earnings to fixed charges..............177
****21 List of Subsidiaries...........................................
<PAGE>
*Incorporated herein by reference to Form 10-K for year ended November 27, 1987.
**Incorporated herein by reference to Harrow Industries, Inc. Registration
Statement (No. 33-12266) on Form S-1 filed April 16, 1987.
***Incorporated herein by reference to Form 10-K for the fiscal year ended
December 1, 1991.
****Incorporated herein by reference to Form 10-K for the fiscal year ended
December 3, 1995.
<PAGE>
Form 10-K--Item 8, Item 14(a)(1) and (2), (c) and (d)
Harrow Industries, Inc. and Subsidiaries
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Harrow Industries, Inc. and
subsidiaries are included in Item 8:
*Consolidated balance sheets--December 1, 1996 and December 3, 1995
*Consolidated statements of stockholders' equity (deficit)--Fiscal years
ended December 1, 1996, December 3, 1995 and November_27, 1994
*Consolidated statements of operations--Fiscal years ended December 1,
1996, December 3, 1995 and November 27, 1994
*Consolidated statements of cash flows--Fiscal years ended December 1,
1996, December 3, 1995 and November 27, 1994
*Notes to consolidated financial statements--December 1, 1996, December 3,
1995 and November 27, 1994
The following consolidated financial statement schedule of Harrow Industries,
Inc. and subsidiaries is included in Item 14(d):
*Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
<PAGE>
Report of Independent Auditors
Board of Directors
Harrow Industries, Inc.
We have audited the accompanying consolidated balance sheets of Harrow
Industries, Inc. and subsidiaries as of December 1, 1996 and December 3, 1995,
and the related consolidated statements of stockholders' equity (deficit),
operations and cash flows for each of the three fiscal years in the period ended
December 1, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Harrow
Industries, Inc. and subsidiaries at December 1, 1996 and December 3, 1995, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended December 1, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Ernst & Young LLP
Grand Rapids, Michigan
January 10, 1997
<PAGE>
<TABLE>
<CAPTION>
Harrow Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
December 1, December 3,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents .................... $ 3,088,000 $ 676,000
Accounts receivable, less allowances
(1996--$1,043,000; 1995--$824,000) .......... 19,085,000 16,453,000
Inventories:
Finished products ............................ 3,735,000 3,524,000
Work in process .............................. 4,321,000 3,956,000
Raw materials ................................ 3,488,000 2,926,000
11,544,000 10,406,000
Deferred income taxes ........................ 2,175,000 1,790,000
Other current assets ......................... 631,000 831,000
Total current assets ......................... 36,523,000 30,156,000
Property, plant and equipment:
Land ......................................... 2,312,000 2,312,000
Buildings .................................... 11,105,000 11,059,000
Machinery and equipment ...................... 28,546,000 25,859,000
41,963,000 39,230,000
Less accumulated depreciation ................ 24,239,000 21,662,000
17,724,000 17,568,000
Other assets:
Intangible assets, less
accumulated amortization
(1996--$6,911,000; 1995--$5,797,000) ......... 12,613,000 13,892,000
Prepaid pension costs ........................ 7,595,000 6,875,000
Other ........................................ 265,000 498,000
20,473,000 21,265,000
$74,720,000 $68,989,000
</TABLE>
<PAGE>
<TABLE>
December 1, December 3,
1996 1995
<S> <C> <C>
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable .................................... $ 6,662,000 $ 6,589,000
Accrued compensation ................................ 5,057,000 4,883,000
Income taxes ........................................ 615,000 410,000
Other accrued expenses .............................. 5,555,000 4,996,000
Total current liabilities ........................... 17,889,000 16,878,000
Long-term debt ...................................... 47,388,000 46,365,000
Other noncurrent liabilities:
Deferred income taxes ............................... 5,405,000 5,540,000
Deferred compensation ............................... 547,000 605,000
5,952,000 6,145,000
Redeemable junior preferred
and common stock ................................... 2,955,000
Stockholders' equity (deficit):
Junior preferred stock, par value $0.01 per share -
authorized: 470,000 shares; issued and outstanding,
excluding redeemable stock: 1996--319,528 shares;
1995--399,964 shares ................................ 3,000 4,000
Common stock, par value $0.01 per share - authorized:
1,100,000 shares; issued and outstanding, including
treasury stock and excluding redeemable stock:
1996--987,294 shares; 1995--1,100,000 shares ........ 10,000 11,000
Additional paid-in capital .......................... 3,370,000 4,006,000
Retained earnings ................................... 12,486,000 9,688,000
Cost of treasury stock (deduct) ..................... (1,225,000)
Deficit arising from restructuring
transactions ........................................ (14,108,000) (14,108,000)
536,000 (399,000)
$ 74,720,000 $ 68,989,000
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Harrow Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal year ended
December 1, December 3, November 27,
1996 1995 1994
<S> <C> <C> <C>
Junior preferred stock
Balance at beginning of year ............... $ 4,000 $ 4,000 $ 4,000
Reclassification of 80,436
redeemable shares ......................... (1,000)
Balance at end of year ..................... 3,000 4,000 4,000
Common stock
Balance at beginning of year ............... 11,000 11,000 11,000
Issuance of 13,315 shares
of common stock in 1994 ................... -0-
Reclassification of 112,706
redeemable shares ......................... (1,000)
Balance at end of year ..................... 10,000 11,000 11,000
Additional paid-in capital
Balance at beginning of year ............... 4,006,000 4,006,000 3,993,000
Issuance of common stock ................... 13,000
Reclassification of redeemable
junior preferred shares ................... (636,000)
Balance at end of year ..................... 3,370,000 4,006,000 4,006,000
Retained earnings
Balance at beginning of year ............... 9,688,000 6,485,000 5,070,000
Net earnings ............................... 5,315,000 3,403,000 1,615,000
Reclassification of redeemable
common shares ............................. (2,317,000)
Cash dividends on junior
preferred stock ($0.50 per share) (200,000) (200,000) (200,000)
Balance at end of year ..................... 12,486,000 9,688,000 6,485,000
Accumulated translation
adjustments
Balance at beginning of year ............... (128,000) (92,000)
Sale of foreign subsidiary ................. 128,000
Equity adjustment from foreign
currency translation ...................... (36,000)
Balance at end of year ..................... -0- (128,000)
Cost of treasury stock
Purchase of 82,150 shares of
common stock for treasury ................. (1,225,000)
Deficit arising from
restructuring transactions
Balance at beginning and end of year ....... (14,108,000) (14,108,000) (14,108,000)
Stockholders' equity (deficit)
at end of year ............................ $ 536,000 $ (399,000) $ (3,730,000)
( ) Denotes deduction.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Harrow Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
Fiscal year ended
December 1, December 3, November 27,
1996 1995 1994
<S> <C> <C> <C>
Net sales .................................................. $ 151,747,000 $ 134,657,000 $ 139,393,000
Cost of products sold ...................................... 96,190,000 85,681,000 93,076,000
Gross margin ............................................... 55,557,000 48,976,000 46,317,000
Selling, administrative and
general expenses .................................. 40,415,000 37,987,000 37,558,000
Operating income ........................................... 15,142,000 10,989,000 8,759,000
Other expenses (income):
Interest expense ........................................... 6,398,000 6,617,000 6,313,000
Interest income ............................................ (31,000) (20,000) (66,000)
Other ...................................................... (70,000) (203,000) (79,000)
6,297,000 6,394,000 6,168,000
Earnings before income taxes ............................... 8,845,000 4,595,000 2,591,000
Income taxes ............................................... 3,530,000 1,192,000 976,000
Net earnings ............................................... $ 5,315,000 $ 3,403,000 $ 1,615,000
Earnings attributable
to common stock ........................................... $ 5,115,000 $ 3,203,000 $ 1,415,000
Net earnings per share ..................................... $ 4.76 $ 2.91 $ 1.29
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Harrow Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal year ended
December 1, December 3, November 27,
1996 1995 1994
<S> <C> <C> <C>
Operating activities
Net earnings ................................ $ 5,315,000 $ 3,403,000 $ 1,615,000
Adjustments necessary to
reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization ............... 4,224,000 3,437,000 3,449,000
Pension income .............................. (720,000) (590,000) (684,000)
Deferred income taxes (credit) .............. (520,000) (799,000) 172,000
Other ....................................... (58,000) (278,000) 206,000
Changes in operating
assets and liabilities:
Accounts receivable ......................... (2,632,000) (974,000) (1,233,000)
Inventories ................................. (1,138,000) (995,000) (1,686,000)
Other current assets ........................ 200,000 (290,000) 295,000
Accounts payable and
accrued expenses ........................... 1,011,000 3,452,000 1,115,000
Net cash provided by
operating activities ....................... 5,682,000 6,366,000 3,249,000
Investing activities
Additions to property,
plant and equipment ........................ (3,059,000) (3,612,000) (4,261,000)
Purchase of business, less
cash acquired .............................. (9,556,000)
Sale of business ............................ 5,351,000
Other ....................................... 184,000 53,000 (172,000)
Net cash used in investing
activities ................................. (2,875,000) (7,764,000) (4,433,000)
Financing activities
Proceeds from long-term borrowings 26,102,000 12,442,000 3,402,000
Payments of long-term debt .................. (25,072,000) (11,087,000) (3,402,000)
Cash dividends on preferred stock ........... (200,000) (200,000) (200,000)
Sale (repurchase) of common stock ........... (1,225,000) 13,000
Net cash provided by (used in)
financing activities ....................... (395,000) 1,155,000 (187,000)
Effect of foreign exchange
rate changes ............................... (13,000)
Increase (decrease) in cash
and cash equivalents ....................... 2,412,000 (243,000) (1,384,000)
Cash and cash equivalents
at beginning of year ....................... 676,000 919,000 2,303,000
Cash and cash equivalents
at end of year ............................. $ 3,088,000 $ 676,000 $ 919,000
Other cash flow information
Interest payments ........................... $ 6,324,000 $ 6,320,000 $ 6,000,000
Income tax payments ......................... 3,906,000 1,798,000 525,000
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 1, 1996, December 3, 1995 and November 27, 1994
Note A--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Harrow Industries,
Inc. ("the Company") and its wholly owned subsidiaries. Upon consolidation, all
intercompany accounts, transactions and profits are eliminated.
Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the Sunday
nearest the end of November. Fiscal 1996 and 1994 included 52 weeks; fiscal 1995
included 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash and cash equivalents include cash on deposit and amounts due from banks
that mature within 90 days of purchase.
Inventories
The majority of inventories are stated at the lower of last-in, first-out (LIFO)
cost or market (see Note B). The remainder of inventories are valued using the
lower of first-in, first-out (FIFO) cost or market.
Property, Plant and Equipment
Property, plant and equipment are recorded on the basis of cost and include
expenditures for new facilities, major renewals and betterments. Normal repairs
and maintenance are expensed as incurred.
Depreciation of plant and equipment is computed using the straight-line method
over the estimated useful lives of the respective assets.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A--Summary of Significant Accounting Policies (continued)
Amortization of Intangible Assets
Goodwill (the excess of purchase price over net tangible assets of businesses
acquired) is amortized principally over 20 years using the straight-line method.
Deferred loan issue costs are amortized using the effective interest method.
Other intangible assets are amortized over periods ranging from 5 to 17 years
using the straight-line method.
Advertising Costs
Advertising costs are expensed as incurred and approximated 2% of net sales.
Income Taxes
The provision for income taxes is based on earnings reported in the consolidated
financial statements. A deferred income tax asset or liability is determined by
applying currently enacted tax laws and rates to the cumulative temporary
differences between the carrying value of assets and liabilities for financial
statement and income tax purposes. Deferred income tax expense (credit) is
measured by the change in the net deferred income tax asset or liability during
the year.
Stock Options
The Company follows Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
employee stock options. Under APB Opinion No. 25, compensation expense is
recognized to the extent that the estimated market value of the underlying stock
exceeds the exercise price of the stock options at the date of grant.
Earnings Per Share
Earnings per share are computed based on the weighted average number of shares
of common stock outstanding. Net earnings are reduced in the computation by
preferred stock dividend requirements.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A--Summary of Significant Accounting Policies (continued)
Financial Instruments and Risk Management
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt. The Company's estimate
of the fair value of these financial instruments approximates their carrying
amounts at December 1, 1996. Fair value was determined using discounted cash
flow analysis and current interest rates for similar instruments. The Company
does not hold or issue financial instruments for trading purposes.
The Company does not generally require collateral or other security on trade
accounts receivable.
Reclassifications
Certain amounts reported in 1995 and 1994 have been reclassified to conform with
the presentation used in 1996.
Note B--Inventories
Inventories of $10,953,000 at December 1, 1996 and $9,981,000 at December 3,
1995 are stated at cost, determined by the LIFO method. If the FIFO method had
been used, the amounts would have been $3,004,000 and $3,040,000 higher than
reported at December_1, 1996 and December 3, 1995, respectively.
Note C--Intangible Assets
Intangible assets consist of the following at December 1, 1996 and December 3,
1995:
<TABLE>
Cost Accumulated
Amortization
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Goodwill .... $11,784,000 $11,784,000 $ 1,966,000 $ 1,280,000
Patents ..... 2,106,000 2,176,000 492,000 353,000
Deferred loan
issue costs 3,064,000 3,145,000 2,301,000 2,179,000
Other ....... 2,570,000 2,584,000 2,152,000 1,985,000
$19,524,000 $19,689,000 $ 6,911,000 $ 5,797,000
</TABLE>
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note D--Long-term Debt
Long-term debt consists of the following obligations:
<TABLE>
December 1, December 3,
1996 1995
<S> <C> <C>
Senior subordinated
debentures, less
unaccreted discount ......... $25,951,000 $37,975,000
Junior subordinated debentures 7,000,000
Revolving credit obligation .. 21,437,000 1,390,000
$47,388,000 $46,365,000
</TABLE>
The senior subordinated debentures bear interest at 12.375%, mature on April 15,
2002 and may be redeemed at the option of the Company, in whole or in part, at
any time at par plus accrued interest to the date of redemption. The debentures
require annual sinking fund payments of $6,500,000. Sinking fund payments may be
deferred to the extent that debentures purchased on the open market are tendered
for cancellation. As a result of current and prior year repurchases of
debentures, no principal maturities are due until 2001, when a net amount of
$6,477,000 is due. The indenture governing the debentures restricts, among other
things, the incurrence of additional senior indebtedness by both the Company and
its subsidiaries, the sale of substantially all assets to another corporation,
the payment of dividends on common stock and the redemption of capital stock
until such time as consolidated stockholders' equity exceeds $1,000,000.
The junior subordinated debentures were redeemed on June 14, 1996 from the
proceeds of borrowings under the Company revolving credit arrangement. The
debentures, which required interest payments at the rate of 14%, were otherwise
due July 15, 2002.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note D--Long-term Debt (continued)
The revolving credit agreement, which was renegotiated effective July 31, 1996,
allows for borrowings of up to $30,000,000 under a formula which includes an
amount based on qualified accounts receivable and inventories, plus a term loan
amount initially established at $15,000,000 and reducing thereafter at a rate of
$146,000 monthly. Amounts available are also subject to various reserve
requirements, as established by the lender. As of December 1, 1996, the
available unused credit under the agreement approximated $8,100,000. Borrowings
under the agreement are collateralized by accounts receivable, inventories,
general intangible assets and certain real estate, are due on July 31, 2001 and
bear interest principally at LIBOR (5.375% at December 1, 1996) plus a variable
amount (1.5% at December 1, 1996) based upon the Company's ratio of debt to
earnings. The Company is required to pay an annual fee equal to 0.375% of the
total unused credit under the agreement. The agreement also provides for a
standby credit facility of $15,000,000 to finance possible future acquisitions.
The Company is required to pay an annual fee equal to 0.25% of the unused credit
available under this portion of the agreement. At the expiration date, the
Company and the lender may agree to extend the agreement for successive one-year
terms. The terms of the credit agreement require the Company, among other
things, to maintain certain financial ratios and minimum levels of working
capital, cash flow and net worth. The agreement also restricts the Company's
ability to merge or consolidate, issue additional debt or purchase its common
stock. In addition, the agreement restricts leases, acquisitions, dispositions
and capital expenditures.
Note E--Leases
Certain office, warehouse and showroom space, machinery, motor vehicles and data
processing equipment are leased under various operating lease agreements. The
Company is required to pay real estate taxes and other occupancy costs under the
facility leases.
Future minimum rental payments due under noncancelable leases at December 1,
1996 are as follows: 1997--$1,533,000; 1998--$1,085,000; 1999--$734,000; 2000--
$586,000; 2001--$481,000; thereafter--$1,402,000. These minimum obligations are
net of the following sublease rentals related to certain dealer showrooms:
1997--$186,000; 1998--$198,000; 1999--$212,000; 2000--$194,000; 2001--$177,000;
thereafter-- $658,000.
Rent expense was $2,270,000 in 1996, $2,126,000 in 1995 and $2,060,000 in 1994.
Contingent rentals were not significant in any of these years.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note F--Pension Plan
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its employees. The plan provides benefits that are based on
the employee's years of service and final average earnings (as defined). The
Company intends to annually contribute amounts deemed necessary, if any, to
maintain the plan on a sound actuarial basis.
The following summarizes the status of the Company's pension assets and related
obligations:
<TABLE>
December 1, December 3,
1996 1995
<S> <C> <C>
Pension assets at fair value .... $ 39,555,000 $ 35,504,000
Actuarial present value of
accumulated plan benefits:
Vested .......................... 24,126,000 22,511,000
Nonvested ....................... 641,000 617,000
24,767,000 23,128,000
Effect of estimated future
increases in compensation ...... 5,120,000 4,473,000
Projected benefit obligation
on service rendered to date .... 29,887,000 27,601,000
Net pension assets .............. $ 9,668,000 $ 7,903,000
Components of net pension assets:
Prepaid pension costs recognized
in other assets ............... $ 7,595,000 $ 6,875,000
Unrecognized amounts, net
of amortization:
Transition assets ............... 1,458,000 2,217,000
Prior service costs ............. (68,000) (74,000)
Net actuarial gains (losses) .... 683,000 (1,115,000)
$ 9,668,000 $ 7,903,000
</TABLE>
The assumed discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% at December 1, 1996 and December 3, 1995.
The assumed rate of increase in future compensation used in the computations was
4% for both years. The adoption of updated mortality tables increased the
projected benefit obligation at December 1, 1996 by approximately $1,150,000.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note F--Pension Plan (continued)
At December 1, 1996, plan assets were invested in equity securities (59%), fixed
income funds (32%), real estate investments (8%) and cash and cash equivalents
(1%). The expected long-term return on pension assets was 9.5% for 1994 through
1996.
The following is a summary of net pension income recognized by the Company:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Service cost pertaining
to benefits earned
during the year ...................... $ 1,057,000 $ 840,000 $ 969,000
Interest cost on projected
benefit obligation ................... 1,949,000 1,832,000 1,694,000
Actual net investment income .......... (5,626,000) (6,704,000) (334,000)
Net amortization and deferral 1,900,000 3,442,000 (3,013,000)
Net pension income .................... $ (720,000) $ (590,000) $ (684,000)
</TABLE>
In addition, the Company recognized a curtailment gain of $662,000 in 1995 as a
result of terminating employees in connection with the sale of the Leigh
business. This curtailment gain is included in the related gain on sale of the
business (see Note L).
Note G--Junior Preferred Stock
The junior preferred stock is nonvoting and may be redeemed for $10 per share,
at the option of the Company, at any time after the repayment of the junior
subordinated debentures provided that, so long as any senior subordinated
debentures are outstanding, such redemption may only be made with the proceeds
received by the Company from the issuance of equity securities of the Company,
from indebtedness that is junior in right of payment to the senior subordinated
debentures or if, after giving effect to such redemptions, consolidated
stockholders' equity exceeds $1,000,000. Annual noncumulative dividends on the
junior preferred stock are $0.50 per share.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H--Stock Repurchase and Option Agreements
On August 28, 1996, Robert Fleming & Co. Limited ("Flemings") acquired 80,436
shares of the Company's junior preferred stock and 112,706 shares of its common
stock from the Company's former chairman and other related parties for
$2,800,000 and simultaneously entered into an agreement with the Company whereby
Flemings has an option to sell such shares to the Company ("put option") and the
Company has the option to acquire such shares from Flemings ("call option")
under certain conditions. The put and call options are exercisable in three
equal portions at prices ranging from $985,000 if exercised prior to December
31, 1996 to $1,275,000 if exercised after December 31, 1998, provided the
Company shall have an equity of $2,275,000 at time of exercise. The options
expire on December 31, 1999. The Company has interest-bearing deposits of
$2,900,000 with Flemings in support of the agreement. The deposits are
refundable ratably as the options are exercised. A director of the Company is
also a director of Flemings. The junior preferred and common shares subject to
the put option are classified as redeemable stock in the consolidated balance
sheet at December 1, 1996.
On December 2, 1996, the Company exercised the first two portions of its option
and acquired all of the available junior preferred stock and 64,820 shares of
the common stock.
On January 2, 1997, Flemings acquired an additional 39,000 shares of the
Company's junior preferred stock and 78,902 shares of its common stock for
$3,429,000 and simultaneously entered into similar put and call options with the
Company. The put and call options for the junior preferred stock are exercisable
at the price of $290,000 prior to March 31, 1997 and $360,000 thereafter. The
junior preferred options must be exercised prior to the exercise of any common
stock options. The put and call options related to common stock are exercisable
in three equal portions at prices ranging from $1,150,000 if exercised prior to
June 30, 1997 to $1,400,000 if exercised after December 31, 1998, provided the
Company shall have an equity of $2,275,000 at the time of each exercise prior to
December 1, 1997 and $2,400,000 thereafter. The options expire on December 31,
1999. The Company has interest-bearing deposits of $3,429,000 with Flemings in
support of this agreement which are refundable ratably as the options are
exercised.
The Company also granted options in 1996 to a key employee to purchase an
aggregate of 20,000 shares of common stock, 4,000 shares of which were
immediately vested and exercisable, and 16,000 shares which vest and become
exercisable ratably from 1997 through 2000 at 4,000 shares per year. The
exercise price of the options approximates the market price of the underlying
shares at the date of grant and, therefore, no compensation expense has been
recognized.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note I--Income Taxes
The provisions for income taxes consist of the following:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal ................... $ 3,600,000 $ 1,690,000 $ 550,000
State ..................... 450,000 240,000 165,000
Canadian .................. 61,000 89,000
4,050,000 1,991,000 804,000
Deferred (credit):
Federal ................... (460,000) (748,000) 400,000
State ..................... (60,000) 6,000 6,000
Canadian .................. (57,000) (234,000)
(520,000) (799,000) 172,000
$ 3,530,000 $ 1,192,000 $ 976,000
</TABLE>
A reconciliation of the Company's total income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% to earnings
before income taxes is as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Income taxes at statutory rate ..... $ 3,007,000 $ 1,562,000 $ 881,000
State income taxes, net of
federal income tax reduction ...... 257,000 162,000 113,000
Excess basis in stock of
Canadian subsidiary sold .......... (292,000)
Foreign tax credits realized ....... (60,000) (104,000)
Nondeductible goodwill amortization 233,000 100,000 53,000
Elimination of excess taxes
provided in prior years ........... (205,000) (108,000)
Other .............................. 93,000 (31,000) 37,000
$ 3,530,000 $ 1,192,000 $ 976,000
</TABLE>
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note I--Income Taxes (continued)
Significant components of the Company's deferred income tax liabilities and
assets are as follows:
<TABLE>
December 1, December 3,
1996 1995
<S> <C> <C>
Deferred income tax liabilities:
Excess tax depreciation ...................... $ 2,321,000 $ 2,614,000
Prepaid pension costs ........................ 2,833,000 2,564,000
Patents ...................................... 534,000 637,000
Other ........................................ 7,000 119,000
Total deferred income tax liabilities ........ 5,695,000 5,934,000
Deferred income tax assets:
Accounts receivable and inventory
valuation allowances ........................ 739,000 687,000
Accrued liabilities .......................... 1,437,000 1,134,000
Deferred compensation accruals ............... 228,000 288,000
Foreign tax credit carryforwards ............. 652,000 818,000
Other ........................................ 61,000 75,000
Total deferred income tax assets ............. 3,117,000 3,002,000
Valuation allowance for
deferred income tax assets .................. (652,000) (818,000)
Net deferred income tax assets ............... 2,465,000 2,184,000
Net deferred income tax liabilities .......... $ 3,230,000 $ 3,750,000
</TABLE>
At December 1, 1996, the Company has foreign tax credit carryforwards of
$652,000 that are available to reduce U.S. income taxes on certain foreign
source income through 2000. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred income tax asset related to
this carryforward, due to the uncertainty of the Company's ability to realize
these benefits in the future.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note J--Contingencies
The Company is involved in proceedings with respect to environmental matters,
including sites where the Company has been identified as a potentially
responsible party under federal and state environmental laws and regulations.
While it is not possible to quantify with certainty the potential impact of
actions regarding environmental matters, particularly any future remediation and
other compliance efforts, in the opinion of management, compliance with the
present environmental protection laws will not have a material adverse effect on
the financial condition or competitive position of the Company. However, the
Company's efforts to comply with increasingly stringent environmental
regulations may have an adverse effect on the Company's future earnings.
The Company is also subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
consolidated financial position of the Company.
Note K--Business Acquisition
Effective as of the beginning of fiscal 1995, the Company acquired all of the
common stock of Recognition Systems, Inc. (RSI) for a net cash purchase price
including related acquisition expenses of $9,556,000. RSI manufactures and
markets biometric identification devices based on the measurement of
three-dimensional hand geometry and had net sales of $3,300,000 in 1994. The
acquisition, which was accounted for under the purchase method, was financed
principally through borrowings under the Company's revolving credit facility
(see Note D). Goodwill and other intangible assets recognized in the transaction
totaled $9,734,000. Pro forma consolidated net earnings for 1994, assuming the
acquisition had occurred as of the beginning of the fiscal year, would have been
$1,450,000 ($1.14 per share).
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note L--Sale of Business
On February 6, 1995, the Company completed the sale of the net assets of its
Leigh business--consisting of the Leigh Products Division in Coopersville,
Michigan and a Canadian subsidiary, Leigh Metal Products, Ltd.--to Milcor
Limited Partnership for net cash proceeds of $5,351,000. Leigh manufactures
specialty sheet metal products for the home remodeling, do-it-yourself and new
residential construction markets. Consolidated net sales for fiscal 1994 include
$24,304,000 related to the Leigh business. Operating income of the Leigh
business was not significant in fiscal 1994. Results of operations of the Leigh
business for the 1995 period prior to the sale are included as part of the
$270,000 gain recognized on the sale.
Note M--Subsequent Event
On December 20, 1996, the Company entered into an agreement to purchase all of
the assets of Broadway Industries, Inc. ("Broadway") for cash including related
expenses of approximately $3,500,000 under a transaction expected to be approved
by a bankruptcy court in February 1997. Broadway manufactures and markets high
quality decorative plumbing fixtures and bath and cabinet hardware. The
acquisition, which will be accounted for under the purchase method, will be
financed principally through borrowings under the Company's revolving credit
facility (see Note D). Broadway had net sales of approximately $9,500,000 in
1996. Pro forma consolidated net earnings for 1996, assuming the acquisition had
occurred as of the beginning of the fiscal year, would not have varied
significantly from the amount reported.
Note N--Restructuring Transactions
In connection with a series of mutually dependent transactions completed in 1987
to acquire the common stock of Harrow Corporation, a subsidiary of the Company
was merged with and into Harrow Corporation. As a result of the merger, the
existing stockholders of Harrow Corporation received cash and equity securities
that exceeded the book value of their interest in its net assets by $14,108,000.
This excess is reflected as a reduction of stockholders' equity in the
consolidated balance sheets. The consolidated financial statements of the
Company have been prepared on a historical cost basis.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note O--Quarterly Results of Operations (unaudited)
The following is a tabulation of the quarterly results of operations:
<TABLE>
Fiscal year ended
December 1, December 3,
1996 1995
<S> <C> <C>
Net sales
First quarter ........................ $ 38,124,000 $ 32,370,000
Second quarter ....................... 39,155,000 33,517,000
Third quarter ........................ 36,947,000 31,641,000
Fourth quarter ....................... 37,521,000 37,129,000
$151,747,000 $134,657,000
Gross margin
First quarter ........................ $ 13,271,000 $ 11,052,000
Second quarter ....................... 14,044,000 12,216,000
Third quarter ........................ 14,039,000 12,040,000
Fourth quarter ....................... 14,203,000 13,668,000
$ 55,557,000 $ 48,976,000
Net earnings
First quarter ........................ $ 759,000 $ 1,136,000
Second quarter ....................... 1,792,000 760,000
Third quarter ........................ 1,370,000 673,000
Fourth quarter ....................... 1,394,000 834,000
$ 5,315,000 $ 3,403,000
Net earnings per share
First quarter ........................ $ 0.64 $ 0.99
Second quarter ....................... 1.59 0.64
Third quarter ........................ 1.22 0.57
Fourth quarter ....................... 1.32 0.71
$ 4.76 $ 2.91
</TABLE>
The fourth quarter of fiscal 1995 includes 14 weeks. All other quarters were
13-week periods. Quarterly net earnings per share for fiscal 1996 do not equal
the annual amount due to changes in average common stock outstanding.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note O--Quarterly Results of Operations (unaudited) (continued)
The first quarter of fiscal 1995 included an estimated gain of $800,000 on the
sale of the Leigh business (see Note L), which was subsequently adjusted
downward by $300,000 in the third quarter and $230,000 in the fourth quarter.
The fourth quarter of fiscal 1995 also included a charge of $1,000,000 to
provide for estimated postemployment benefits and certain other costs related to
the Company's former chairman and its president and chief executive officer.
Adjustments to the provisions for income taxes increased fourth quarter net
earnings by $100,000 in 1995 and $150,000 in 1994.
Note P--Industry Segments
Beginning in fiscal 1996, the Company redefined its industry segments to include
(1) security products, (2) hardware and tools and (3) other buildings products.
Segment data for 1995 and 1994 has been restated to conform to the 1996
presentation.
Security Products Group
This segment includes the design, manufacture and distribution of electronic and
electromagnetic security products and systems and biometric identification
devices to the nonresidential access control market. Biometric identification
devices are also distributed to the time and attendance and personal
identification markets. Sales are made through a combination of in-house sales
personnel and manufacturers' representatives.
Hardware and Tools Group
This segment includes the manufacture and distribution of a diversified line of
brass and aluminum architectural, builder and consumer hardware, wire hardware
products and storage hooks and a broad line of forged pruning and harvesting
tools, shears, saws and other hand-held garden tools. A significant portion of
this segment's sales are to consumers that are served through a retail network
that includes a number of major home centers. Architectural and builder hardware
products are also sold through distributors to the contractor hardware market. A
line of professional pruning and harvesting tools are sold through distributors
for agricultural applications and professional landscaping. Wire hardware
products are also marketed to certain industrial customers.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note P--Industry Segments (continued)
Other Building Products
This segment includes the manufacture and distribution of water source heat
pumps and custom kitchen, bath and other cabinetry. Prior to the sale of Leigh
business (see Note L), this segment also included mailboxes, medicine cabinets,
registers, vents and other air control products. Heat pumps are sold through
manufacturers' representatives to large mechanical contractors and through
multi-branch stocking distributors who in turn sell to smaller dealers. Custom
cabinetry is sold through an extensive dealer network to the home renovation and
new home construction markets.
The following is a summary of sales and operating income by industry segment:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Sales to unaffiliated customers:
Security products ........... $ 23,165,000 $ 20,247,000 $ 12,787,000
Hardware and tools .......... 84,202,000 74,967,000 68,181,000
Other building products ..... 44,380,000 39,443,000 58,425,000
$ 151,747,000 $ 134,657,000 $ 139,393,000
Operating income:
Security products ........... $ 3,742,000 $ 4,192,000 $ 2,382,000
Hardware and tools .......... 9,475,000 8,169,000 7,665,000
Other building products ..... 6,277,000 5,115,000 3,802,000
19,494,000 17,476,000 13,849,000
Corporate:
Interest expense ............ (6,398,000) (6,617,000) (6,313,000)
Interest income ............. 31,000 20,000 66,000
Nonoperating income (expense) 70,000 203,000 79,000
General expenses ............ (4,352,000) (6,487,000) (5,090,000)
Earnings before income taxes 8,845,000 4,595,000 2,591,000
Income taxes ................ 3,530,000 1,192,000 76,000
Net earnings ................ $ 5,315,000 $ 3,403,000 $ 1,615,000
</TABLE>
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note P--Industry Segments (continued)
Other industry segment information is as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Identifiable assets:
Security products ................. $14,721,000 $13,988,000 $ 3,622,000
Hardware and tools ................ 30,496,000 30,338,000 28,034,000
Other building products ........... 15,270,000 13,535,000 20,055,000
Corporate ......................... 14,233,000 11,128,000 9,667,000
$74,720,000 $68,989,000 $61,378,000
Depreciation and amortization:
Security products ................. $ 1,173,000 $ 716,000 $ 326,000
Hardware and tools ................ 1,829,000 1,716,000 1,678,000
Other building products ........... 855,000 688,000 1,009,000
Corporate 367,000 ................. 317,000 436,000
$ 4,224,000 $ 3,437,000 $ 3,449,000
Capital additions:
Security products ................. $ 644,000 $ 505,000 $ 326,000
Hardware and tools ................ 1,481,000 1,879,000 2,009,000
Other building products ........... 925,000 1,120,000 1,908,000
Corporate ......................... 9,000 108,000 18,000
$ 3,059,000 $ 3,612,000 $ 4,261,000
</TABLE>
Corporate assets include cash and cash equivalents, deferred income taxes,
prepaid pension costs, deferred loan issue expenses and other general corporate
assets.
Intersegment sales and export sales are not significant for the fiscal years
presented. Sales to one major home center approximated 10% of consolidated net
sales. No other single customer accounts for more than 10% of the consolidated
net sales.
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<TABLE>
Column A Column B Column C Column D Column E
Balance at Additions
Beginning (1) (2)
Description of Period Charged to Charged to Deductions- Balance
Costs and Other Describe at End of
Expenses Accounts- Period
Describe
<S> <C> <C> <C> <C> <C>
Fiscal year ended
December 1, 1996:
Allowance for
doubtful accounts . $ 824,000 $ 247,000 - $ 28,000 (A) $1,043,000
Allowance for
excess and
obsolete inventory 660,000 93,000 - - 753,000
Fiscal year ended
December 3, 1995:
Allowance for
doubtful accounts . $ 674,000 $ 381,000 - $231,000 (A) $824,000
Allowance for
excess and
obsolete inventory . 576,000 253,000 - 169,000 (A) 660,000
Fiscal year ended
November 27, 1994:
Allowance for
doubtful accounts . $ 566,000 $ 265,000 - $157,000 (A) $674,000
Allowance for
excess and
obsolete inventory 863,000 429,000 - 716,000 (B) 576,000
A--Accounts charged off, net of recoveries.
B--Excess and obsolete inventory disposed of.
</TABLE>
<PAGE>
EXHIBIT 4.3
HARROW PRODUCTS, INC.
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated: As of July 31, 1996
$45,000,000
FLEET CAPITAL CORPORATION
STL-506421.06
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. CREDIT FACILITY -1-
1.1 Revolving Credit Loans -1-
1.2 Term and Acquisition Loans -2-
1.3 Letters of Credit; LC Guaranties -2-
SECTION 2. INTEREST, FEES AND CHARGES -3-
2.1 Interest -3-
2.2 Computation of Interest and Fees -3-
2.3 LIBOR Option -4-
2.4 Closing Fee -5-
2.5 Letter of Credit and LC Guaranty Fees -6-
2.6 Unused Line Fee -6-
2.7 Collection Charges -6-
2.8 Audit and Appraisal Fees -7-
2.9 Reimbursement of Expenses -7-
2.10 Bank Charges -7-
SECTION 3. LOAN ADMINISTRATION -8-
3.1 Manner of Borrowing Revolving Credit Loans -8-
3.2 Payments -9-
3.3 Mandatory Prepayments -10-
3.4 Application of Payments and Collections -10-
3.5 All Loans to Constitute One Obligation -11-
3.6 Loan Account -11-
3.7 Statements of Account -11-
SECTION 4. TERM AND TERMINATION -11-
4.1 Term of Agreement -11-
4.2 Termination -12-
SECTION 5. SECURITY INTERESTS -13-
5.1 Security Interest in Collateral -13-
5.2 Lien Perfection; Further Assurances -13-
5.3 Lien on Realty -14-
SECTION 6. COLLATERAL ADMINISTRATION -14-
6.1 General -14-
6.2 Administration of Accounts -15-
6.3 Administration of Inventory -17-
6.4 Administration of Equipment -18-
6.5 Payment of Charges -18-
SECTION 7. REPRESENTATIONS AND WARRANTIES -19-
7.1 General Representations and Warranties -19-
7.2 Continuous Nature of Representations and
Warranties -26-
7.3 Survival of Representations and Warranties -26-
STL-506421.06
<PAGE>
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS -26-
8.1 Affirmative Covenants -26-
8.2 Negative Covenants -29-
8.3 Specific Financial Covenants -32-
SECTION 9. CONDITIONS PRECEDENT -32-
9.1 Documentation -33-
9.2 No Default -33-
9.3 Other Loan Documents -33-
9.4 Availability -33-
9.5 No Litigation -33-
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT -33-
10.1 Events of Default -33-
10.2 Acceleration of the obligations -36-
10.3 Other Remedies -36-
10.4 Remedies Cumulative; No Waiver -38-
SECTION 11. MISCELLANEOUS -38-
11.1 Power of Attorney -38-
11.2 Indemnity -39-
11.3 Modification of Agreement; Sale of Interest -40-
11.4 Severability -40-
11.5 Successors and Assigns -41-
11.6 Cumulative Effect; Conflict of Terms -41-
11.7 Execution in Counterparts -41-
11.8 Notice -41-
11.9 Lender's Consent -42-
11.10 Credit Inquiries -42-
11.11 Time of Essence -42-
11.12 Entire Agreement -42-
11.13 Interpretation -42-
11.14 GOVERNING LAW; CONSENT TO FORUM -43-
11.15 WAIVERS BY BORROWER -43-
STL-506421.06
<PAGE>
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made the
31st day of July, 1996, by and between FLEET CAPITAL CORPORATION ("Lender"), a
Rhode Island corporation with an office at 20800 Swenson Drive, Suite 350,
Waukesha, Wisconsin 53186 and .HARROW PRODUCTS, INC., ("Borrower"), a Delaware
corporation with its chief executive office and principal place of business at
2627 East Beltline, S.E., Grand Rapids, Michigan 49546. Capitalized terms used
in this Agreement have the meanings assigned to them in Appendix A, General
Definitions. Accounting terms not otherwise specifically defined herein shall be
construed in accordance with GAAP consistently applied.
PRELIMINARY STATEMENTS
A. Barclays and Borrower entered into a Loan and Security Agreement dated
April 5, 1991, as amended from time to time (the "1991 Loan Agreement"), and
assigned to SCC, on or about December 31, 1994, which subsequently changed its
name to Fleet Capital Corporation ("Fleet-Connecticut").
B. Lender subsequently succeeded to all of the assets of Fleet-Connecticut
by merger effective as of May 1, 1996.
C. Lender and Borrower now desire to amend and restate in its entirety the
1991 Loan Agreement to extend the maturity date thereof, increase the credit
facility available to Borrower thereunder and to make certain other amendments
thereto.
NOW, THEREFORE, Lender and Borrower agree as follows:
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $45,000,000
available upon Borrower's request therefor, as follows:
STL-506421.07
<PAGE>
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long as no Default or Event
of Default exists, to make Revolving Credit Loans to Borrower from time to time,
as requested by Borrower in the manner set forth in subsection 3.1.1 hereof, up
to a maximum principal amount at any time outstanding equal to the Borrowing
Base at such time minus the LC Amount and reserves, if any. Lender shall have
the right to establish reserves in such amounts, and with respect to such
matters, as Lender shall deem necessary or appropriate, in its reasonable credit
judgment, against the amount of Revolving Credit Loans which Borrower may
otherwise request under this subsection 1.1.1, including, without limitation,
with respect to (i) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the ordinary
course of Borrower's business; (ii) shrinkage, spoilage and obsolescence of
Inventory; (iii) slow moving Inventory; (iv) other sums chargeable against
Borrower's Loan Account as Revolving Credit Loans under any section of this
Agreement; (v) amounts owing by Borrower to any Person to the extent secured by
a Lien on, or trust over, any Property of Borrower, not otherwise permitted
hereunder; and (vi) such other matters, events, conditions or contingencies as
to which Lender, in its reasonable credit judgment, determines reserves should
be established from time to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used solely for
(i) the making of an advance of up to $12,000,000 to Harrow Industries in
accordance with the terms of the Distribution Agreement Amendment, and (ii)
Borrower's general operating capital needs in a manner consistent with the
provisions of this Agreement and all applicable law.
1.2 Term and Acquisition Loans.
1.2.1 Term Loan. Lender agrees to make a term loan to Borrower upon
Borrower's written request therefor within 60 days of the Closing Date in the
principal amount of $15,000,000, which shall be repayable in accordance with the
terms of the Term Note and shall be secured by all of the Collateral; provided,
however, that Lender's obligation to make said Term Loan shall be conditioned
upon, among other items set forth in this Agreement, Lender's determination that
Borrower shall have no less than $3,000,000 of Availability both immediately
before and immediately after the funding of said Term Loan. The proceeds of the
Term Loan shall be used solely for purposes for which the proceeds of the
Revolving Credit Loans are authorized to be used.
1.2.2 Acquisition Loans. So long as no Default or Event of Default exists,
Lender may, in its sole discretion, make
STL-506421.07
-2-
<PAGE>
Loans ("Acquisition Loans") to Borrower from time to time from and after the
Closing Date through July 31, 2001, to finance the Borrower's acquisition of a
business or businesses. Each Acquisition Loan, if any, shall (i) be in a
principal amount mutually agreed upon, (ii) be secured by all of the Collateral,
and (iii) be made by Lender increasing the maximum amount of the Borrowing Base
by an amount equal to said Acquisition Loan; provided, however, that the
principal amount of Acquisition Loans hereunder, and the resulting increase in
the maximum amount of the Borrowing Base shall not exceed, in the aggregate,
$15,000,000. Lender may condition the making of any Acquisition Loan on such
items as Lender deems appropriate, in its sole discretion, including, among
other items, if the acquisition of the business is a stock acquisition, the
pledge of the stock acquired by the Borrower and the grant by the acquired
entity of a security interest in its assets as Collateral hereunder.
1.3 Letters of Credit; LC Guaranties. Lender agrees, for so long as no
Default or Event of Default exists and if requested by Borrower, to (i) issue
its, or cause to be issued its Affiliate's Letters of Credit for the account of
Borrower or RSI, or (ii) execute LC Guaranties by which Lender or its Affiliate
shall guaranty the payment or performance by Borrower or RSI of its
reimbursement obligations with respect to Letters of Credit, provided that the
LC Amount at any time shall not exceed $1,500,000. No Letter of Credit or LC
Guarantee may have an expiration date that is after the last day of the Original
Term. Any amounts paid by Lender under any LC Guaranty or in connection with any
Letter of Credit shall be treated as Revolving Credit Loans, shall be secured by
all of the Collateral and shall bear interest and be payable at the same rate
and in the same manner as Revolving Credit Loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(i) Until such time as the Term Loan is funded, as provided in Section
1.2.1 hereof, interest shall accrue on the principal amount of all
Revolving Credit Loans outstanding at the end of each day at a fluctuating
rate per annum equal to 1.625% plus the Base Rate. The rate of interest
shall increase or decrease by an amount equal to any increase or decrease
in the Base Rate, effective as of the opening of business on the day that
any such change in the Base Rate occurs.
(ii) Once the Term Loan is funded as provided in Section 1.2.1 hereof,
interest shall accrue as follows:
STL-506421.07
-3-
<PAGE>
(a) Interest shall accrue on the Term Loan in accordance with the
terms of the Term Note.
(b) Interest shall accrue on the principal amount of the Base
Rate Revolving Credit Portion outstanding at the end of each day at a
fluctuating rate per annum equal to the Base Rate. The rate of
interest shall increase or decrease by an amount equal to any increase
or decrease in the Base Rate, effective as of the opening of business
on the day that any such change in the Base Rate occurs. If Borrower
properly exercises its LIBOR Option as provided in Section 2.3,
interest shall accrue on the principal amount of the LIBOR Revolving
Credit Portions outstanding at the end of each day at a rate per annum
equal to the Applicable LIBOR Margin plus the LIBOR Rate applicable to
each LIBOR Revolving Credit Portion for the corresponding LIBOR
Period.
2.1.2 Default Rate of Interest. Upon and after the occurrence of an Event
of Default, and during the continuation thereof, the principal amount of all
Loans shall bear interest at a rate per annum equal to 2% above the interest
rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the aggregate of all
amounts deemed interest hereunder or under the Term Note and charged or
collected pursuant to the terms of this Agreement or pursuant to the Term Note
exceed the highest rate permissible under any law which a court of competent
Jurisdiction shall, in a final determination, deem applicable hereto. If any
provisions of this Agreement or the Term Note are in contravention of any such
law, such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest, Letter of Credit and LC
Guaranty fees and unused line fees and collection charges hereunder shall be
calculated daily and shall be computed on the actual number of days elapsed over
a year of 360 days. For the purpose of computing interest hereunder, all items
of payment received by Lender shall be deemed applied by Lender on account of
the Obligations (subject to final payment of such items) on the first Business
Day after receipt by Lender of such items in Lender's account located in
Chicago, Illinois.
2.3 LIBOR Option.
(i) Upon the conditions that: (1) the Term Loan shall have been funded
as provided in Section 1.2.1 hereof, (2) Lender shall have received a LIBOR
Request from Borrower
STL-506421.07
-4-
<PAGE>
at least 3 Business Days prior to the first day of the LIBOR Period
requested, (3) there shall have occurred no change in applicable law which
would make it unlawful for Lender to obtain deposits of U.S. dollars in the
London interbank foreign currency deposits market, (4) as of the date of
the LIBOR Request and the first day of the LIBOR Period, there shall exist
no Default or Event of Default, (5) Lender is able to determine the LIBOR
Rate in respect of the requested LIBOR Period or Lender is able to obtain
deposits of U.S. dollars in the London interbank foreign currency deposits
market in the applicable amounts and for the requested LIBOR Period, and
(6) as of the first date of the LIBOR Period, there are no more than 3
outstanding LIBOR Portions including the LIBOR Portion being requested;
then interest on the LIBOR Revolving Credit Portion and/or LIBOR Term
Portion requested during the LIBOR Period requested will be based on the
applicable LIBOR Rate.
(ii) Each LIBOR Request shall be irrevocable and binding on Borrower.
Borrower shall indemnify Lender for any loss, penalty or expense incurred
by Lender due to the failure on the part of Borrower to fulfill, on or
before the date specified in any LIBOR Request, the applicable conditions
set forth in this Agreement or due to the prepayment of the applicable
LIBOR Revolving Credit Portion or LIBOR Term Portion prior to the last day
of the applicable LIBOR Period, including, without limitation, any loss
(including loss of anticipated profits on the LIBOR transaction(s) based
upon the applicable LIBOR Rate and Lender's cost of LIBOR funds) or expense
incurred by reason of the liquidation or redeployment of deposits or other
funds acquired by Lender to fund or maintain the requested LIBOR Revolving
Credit Portion and/or LIBOR Term Portion.
(iii) If any Legal Requirement shall (1) make it unlawful for Lender
to fund through the purchase of U.S. dollar deposits any LIBOR Revolving
Credit Portion or LIBOR Term Portion, or otherwise give effect to its
obligations as contemplated under this Section 2.3, or (2) shall impose on
Lender any costs based on or measured by the excess above a specified level
of the amount of a category of deposits or other liabilities of Lender
which includes deposits by reference to which the LIBOR Rate is determined
as provided herein or a category of extensions of credit or other assets of
Lender which includes any LIBOR Revolving Credit Portion or LIBOR Term
Portion, or (3) shall impose on Lender any restrictions on the amount of
such a category of liabilities or assets which Lender may hold, then, in
each such case, Lender may, by notice thereof to Borrower, terminate the
LIBOR Option. Any LIBOR Revolving Credit Portion and/or LIBOR Term Portion
subject thereto shall immediately bear
STL-506421.07
-5-
<PAGE>
interest thereafter at the rate and in the manner provided for Base
Rate Portions pursuant to subsection 2.1.1. Borrower shall indemnify Lender
against any loss, penalty or expense incurred by Lender due to liquidation
or redeployment of deposits or other funds acquired by Lender to fund or
maintain any LIBOR Revolving Credit Portion and/or LIBOR Term Portion that
is terminated hereunder.
(iv) Lender shall receive payments of amounts of principal of and
interest on the Revolving Credit Loans with respect to LIBOR Revolving
Credit Portions, and on the Term Note with respect to LIBOR Term Portions,
free and clear of, and without deduction for, any Taxes. If (1) Lender
shall be subject to any Tax in respect of any LIBOR Revolving Credit
Portion or LIBOR Term Portion, or any part thereof or, (2) Borrower shall
be required to withhold or deduct any Tax from any such amount, the LIBOR
Rate applicable to such LIBOR Revolving Credit Portion or LIBOR Term
Portion shall be adjusted by Lender to reflect all additional costs
incurred by Lender in connection with the payment by Lender or the
withholding by Borrower of such Tax and Borrower shall provide Lender with
a statement detailing the amount of any such Tax actually paid by Borrower.
Determination by Lender of the amount of such costs shall be conclusive in
the absence of manifest error. If after any such adjustment any part of any
Tax paid by Lender is subsequently recovered by Lender, Lender shall
reimburse Borrower to the extent of the amount so recovered. A certificate
of an officer of Lender setting forth the amount of such recovery and the
basis therefor shall be conclusive in the absence of manifest error.
2.4 Closing Fee. Borrower shall pay to Lender a closing fee of $50,000,
which shall be fully earned and nonrefundable on the Closing Date and shall be
paid concurrently with the initial Loan hereunder.
2.5 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender:
(i) for standby Letters of Credit and LC Guaranties of standby Letters
of Credit, a fee equal to 1.5% per annum of the aggregate face amount of
such Letters of Credit and LC Guaranties outstanding from time to time
during the term of this Agreement, which fee shall be deemed fully earned
and shall be due and payable upon issuance of each such Letter of Credit or
execution of such LC Guaranty, plus all normal and customary charges
associated with the issuance thereof, which charges shall also be deemed
fully earned and shall be due and payable upon issuance of each such Letter
of Credit or execution of such LC Guaranty (such fees and charges
STL-506421.07
-6-
<PAGE>
shall not be subject to rebate or proration upon the termination of this
Agreement for any reason); and
(ii) for documentary Letters of Credit and LC Guaranties of
documentary Letters of Credit, a fee equal to 1.5% per annum of the face
amount of each such Letter of Credit or LC Guaranty, and an additional fee
equal to 1.5% per annum of the face amount of such Letter of Credit or LC
Guaranty for each renewal and each extension thereof plus the normal and
customary charges associated with the issuance and administration of each
such Letter of Credit or LC Guaranty (which fees and charges shall be fully
earned upon issuance, renewal or extension (as the case may be) of each
such Letter of Credit or LC Guaranty, shall be due and payable on the first
Business Day of each month, and shall not be subject to rebate or proration
upon the termination of this Agreement for any reason).
2.6 Unused Line Fee. Borrower shall pay to Lender a fee equal to the sum of
(i) 0.375% per annum of the average monthly amount by which $30,000,000 exceeds
the sum of (A) the outstanding principal balance of the Revolving Credit Loans,
(B) the outstanding principal balance of the Term Loan, and (C) the LC Amount,
plus (ii) 0.25% per annum of the average monthly amount by which $15,000,000
exceeds the outstanding principal balance of the Acquisition Loans. The unused
line fee shall be payable monthly in arrears on the first day of each calendar
month hereafter.
2.7 Collection Charges. If items of payment on Accounts are received by
Lender at a time when there are no Revolving Credit Loans outstanding but all or
a portion of the Term Loan is outstanding, then such items of payment shall be
subject to a collection charge equal to one day's interest on the amount thereof
at the rate then applicable to Revolving Credit Loans, which collection charges
shall be payable on the first Business Day of each month.
2.8 Audit and Appraisal Fees. Borrower shall pay to Lender audit and
appraisal fees in accordance with Lender's current schedule of fees in effect
from time to time in connection with audits and appraisals of Borrower's books
and records and such other matters as Lender shall deem appropriate, plus all
out-of pocket expenses incurred by Lender in connection with such audits and
appraisals. Audit fees shall be payable on the first day of the month following
the date of issuance by Lender of a request for payment thereof to Borrower.
2.9 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender or any Participating
Lender incurs reasonable legal or
STL-506421.07
-7-
<PAGE>
accounting expenses or any other costs or out-of-pocket expenses in connection
with (i) the negotiation and preparation of this Agreement or any of the other
Loan Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents, or any sale or attempted sale or any interest herein to a
Participating Lender; (ii) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby; (iii)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or Borrower's affairs; (iv)
any attempt to enforce any rights of Lender or any Participating Lender against
Borrower or any other Person which may be obligated to Lender by virtue of this
Agreement or any of the other Loan Documents, including, without limitation, the
Account Debtors; or (v) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then all such reasonable legal and accounting expenses, other costs
and out of pocket expenses of Lender shall be charged to Borrower. All amounts
chargeable to Borrower under this Section shall be Obligations secured by all of
the Collateral, shall be payable on demand to Lender or to such Participating
Lender, as the case may be, and shall bear interest from the date such demand is
made until paid in full at the rate applicable to Revolving Credit Loans from
time to time. Borrower shall also reimburse Lender for expenses incurred by
Lender in its administration of the Collateral to the extent and in the manner
provided in Section 6 hereof.
2.10 Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender or any Participating Lender pays to a bank
or other similar institution (including, without limitation, any fees paid by
Lender to any Participating Lender) arising out of or in connection with (i) the
forwarding to Borrower or any other Person on behalf of Borrower, by Lender or
any Participating Lender, of proceeds of Loans made by Lender to Borrower
pursuant to this Agreement and (ii) the depositing for collection, by Lender or
any Participating Lender, of any check or item of payment received or delivered
to Lender or any Participating Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION.
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the credit
facility established pursuant to Section 1 hereof shall be as follows:
3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be made,
or shall be deemed to be made, in the
STL-506421.07
-8-
<PAGE>
following manner: (i) Borrower may give Lender notice of its intention to
borrow, in which notice Borrower shall specify the amount of the proposed
borrowing, which shall be no less than $100,000, and the proposed borrowing
date, no later than 11:00 a.m. central time on the proposed borrowing date,
provided, however, that no such request may be made at a time when there exists
a Default or an Event of Default; and (ii) the becoming due of any amount
required to be paid under this Agreement or the Term Note, whether as interest
or for any other Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to Borrower, Lender may permit
telephonic requests for loans and electronic transmittal of instructions,
authorizations, agreements or reports to Lender by Borrower. Unless Borrower
specifically directs Lender in writing not to accept or act upon telephonic or
electronic communications from Borrower, Lender shall have no liability to
Borrower for any loss or damage suffered by Borrower as a result of Lender's
honoring of any requests, execution of any instructions, authorizations or
agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by Borrower and Lender
shall have no duty to verify the origin of any such communication or the
authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender to
disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of
each Revolving Credit Loan requested under subsection 3.1.1(i) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (ii) the proceeds of each Revolving
Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by
way of direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes Lender, in
Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the obligations during the immediately preceding month and
to pay all reasonable costs, fees and expenses at any time owed by Borrower to
Lender hereunder.
3.2 Payments. Except where evidenced by notes or other instruments issued
or made by Borrower to Lender specifically
STL-506421.07
-9-
<PAGE>
containing payment provisions which are in conflict with this Section 3.2 (in
which event the conflicting provisions of said notes or other instruments shall
govern and control), the Obligations shall be payable as follows:
3.2.1 Principal. Principal payable on account of Revolving Credit Loans
shall be payable by Borrower to Lender immediately upon the earliest of (i) the
receipt by Lender or Borrower of any proceeds of any of the Collateral other
than Equipment or real Property, to the extent of said proceeds, except that, so
long as no Default or Event of Default exists, if all Loans outstanding at the
time of receipt by Borrower of any such proceeds are LIBOR Portions, then
Borrower may direct that such proceeds be held by Lender in a non-interest
bearing cash collateral account maintained by Lender to be applied to the
payment of principal on the last day of the LIBOR Period applicable to each
LIBOR Portion in the order of maturity, (ii) the occurrence of an Event of
Default in consequence of which Lender elects to accelerate the maturity and
payment of the Obligations, or (iii) termination of this Agreement pursuant to
Section 4 hereof; provided, however, that if an Overadvance shall exist at any
time, Borrower shall, on demand, repay the Overadvance.
3.2.2 Interest.
(i) Base Rate Revolving Credit Portion. Interest accrued on Base Rate
Revolving Credit Portions shall be due on the earliest of (1) the first
calendar day of each month (for the immediately preceding month), computed
through the last calendar day of the preceding month, (2) the occurrence of
an Event of Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations, or (3) termination of this
Agreement pursuant to Section 4 hereof.
(ii) LIBOR Revolving Credit Portion. Interest accrued on each LIBOR
Revolving Credit Portion shall be due and payable on the earliest of (1)
the first calendar day of each month (for the immediately preceding month),
computed through the last calendar day of the preceding month, commencing
on the first day of the month immediately following the beginning of the
LIBOR Period for such LIBOR Revolving Credit Portion, (2) the occurrence of
an Event of Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations, or (3) termination of this
Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees and Charges. All reasonable costs, fees and charges
payable pursuant to this Agreement shall be payable by Borrower as and when
provided in Section 2 hereof,
STL-506421.07
- 10 -
<PAGE>
to Lender or to any other Person designated by Lender in writing.
3.2.4 Other Obligations. The balance of the Obligations requiring the
payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is later.
3.3 Mandatory Prepayments. Except as provided in subsection 6.4.2 hereof:
(i) if Borrower sells any of the Equipment and the proceeds payable to
Borrower in consequence thereof, when aggregated with all other such
proceeds payable to Borrower during Borrower's then current fiscal year,
total $500,000 or less, then Borrower shall pay to Lender, unless otherwise
agreed by Lender, as and when received by Borrower and as a mandatory
prepayment of the Revolving Credit Loan, a sum equal to the proceeds
(including insurance payments) received by Borrower from such sale;
(ii) if Borrower sells any of the Equipment and the proceeds payable
to Borrower in consequence thereof, when aggregated with all other such
proceeds payable to Borrower during Borrower's then current fiscal year,
total more than $500,000, then Borrower shall pay to Lender, unless
otherwise agreed by Lender, as and when received by Borrower and as a
mandatory prepayment of the Term Loan, a sum equal to the proceeds
(including insurance payments) received by Borrower from such sale; and
(iii) if Borrower sells any of the real Property, or if any of the
Collateral is lost, damage or destroyed or taken by condemnation, Borrower
shall pay to Lender, unless otherwise agreed by Lender, as and when
received by Borrower and as a mandatory prepayment of the Term Loan, a sum
equal to the proceeds (including insurance payments) received by Borrower
from such sale, damage, loss, destruction or condemnation.
3.4 Application of Payments and Collections. All items of payment received
by Lender by 12:00 noon, central time, on any Business Day shall be deemed
received on that Business Day. All items of payment received after 12:00 noon,
central time, on any Business Day shall be deemed received on the following
Business Day. Borrower irrevocably waives the right to direct the application of
any and all payments and collections at any time or times hereafter received by
Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree
that, subject to subsection 3.2.1(i), except with respect to payments credited
to the Revolving Credit Loan under Section 3.3, Lender
STL-506421.07
-11-
<PAGE>
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Lender or
its agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as the
result of collections of Accounts as authorized by subsection 6.2.5 hereof a
credit balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower,, but shall be available to Borrower at any time
or times for so long as no Default or Event of Default exists. Such credit
balance shall not be applied or be deemed to have been applied as a prepayment
of the Term Loan, except that Lender may, at its option, offset such credit
balance against any of the Obligations upon and after the occurrence of an Event
of Default.
3.5 All Loans to Constitute One Obligation. The Loans shall constitute one
general Obligation of Borrower, and shall be secured by Lender's Lien upon all
of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will Account to Borrower monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within 30 days of the date each accounting is mailed to Borrower. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Loans to
Borrower upon or after the occurrence of any Default or Event of Default, this
Agreement shall be in effect for a period of 5 years from the date hereof,
through and including July 31, 2001 (the "Original Term"), and this Agreement
shall automatically renew itself for successive 1 year periods thereafter (the
"Renewal Terms"), unless terminated as provided in Section 4.2 hereof.
STL-506421.07
- 12 -
<PAGE>
4.2 Termination.
4.2.1 Termination by Lender. Lender may terminate this Agreement without
notice upon or after the occurrence of an Event of Default, or upon 90 days
prior written notice to Borrower at the end of the Original Term or any Renewal
Term.
4.2.2 Termination by Borrower. Upon at least 90 days prior written notice
to Lender, Borrower may, at its option, terminate this Agreement; provided,
however, no such termination shall be effective until Borrower has paid all of
the Obligations in immediately available funds and all Letters of Credit and LC
Guaranties have expired or have been cash collateralized to Lender's
satisfaction. Any notice of termination given by Borrower shall be irrevocable
unless Lender otherwise agrees in writing, and Lender shall have no obligation
to make any Loans or issue or procure any Letters of Credit or LC Guaranties on
or after the termination date stated in such notice. Borrower may elect to
terminate this Agreement in its entirety only. No section of this Agreement or
type of Loan available hereunder may be terminated singly.
4.2.3 Effect of Termination. All of the obligations shall be immediately
due and payable upon the termination date stated in any notice of termination of
this Agreement. All undertakings, agreements, covenants, warranties and
representations of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its Liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds. Notwithstanding the payment in full of the
Obligations, Lender shall not be required to terminate its security interests in
the Collateral unless, with respect to any loss or damage Lender may incur as a
result of dishonored checks or other items of payment received by Lender from
Borrower or any Account Debtor and applied to the Obligations, Lender shall, at
its option, (i) have received a written agreement, executed by Borrower and by
any Person whose loans or other advances to Borrower are used in whole or in
part to satisfy the Obligations, indemnifying Lender from any such loss or
damage; or (ii) have retained such monetary reserves and Liens on the Collateral
for such period of time as Lender, in its reasonable discretion, may deem
necessary to protect Lender from any such loss or damage.
STL-506421.07
- 13 -
<PAGE>
SECTION S. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing or
hereafter created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) All monies and other Property of any kind now or at any time or
times hereafter in the possession or under the control of Lender or a
bailee or Affiliate of Lender;
(vi) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (v) above,
including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and
(vii) All books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (vi)
above.
5.2 Lien Perfection; Further Assurances. Borrower shall execute such UCC-1
financing statements as are required by the Code and such other instruments,
assignments or documents as are necessary to perfect Lender's Lien upon any of
the Collateral and shall take such other action as may be required to perfect or
to continue the perfection of Lender's Lien upon the Collateral. Unless
prohibited by applicable law, Borrower hereby authorizes Lender to execute and
file any such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement and may be filed in any appropriate office in lieu
thereof. At Lender's request, Borrower shall also promptly execute or cause to
be executed and shall deliver to Lender any and all documents, instruments and
agreements deemed necessary by Lender to give effect to or carry out the terms
or intent of the Loan Documents.
5.3 Lien on Realty. The due and punctual payment and
STL-506421.07
- 14 -
<PAGE>
performance of the Obligations shall also be secured by the Lien created by the
Mortgage upon all real Property of Borrower described therein. The Mortgage
Amendment shall be executed by Borrower in favor of Lender and shall be duly
recorded, at Borrower's expense, in each office where such recording is required
to constitute a fully perfected Lien on the real Property covered thereby.
Borrower shall deliver to Lender, at Borrower's expense, appropriate
endorsements to any and all mortgagee title insurance policies in favor of
Lender relating to the Mortgage issued by a title insurance company satisfactory
to Lender, which shall be in form and substance satisfactory to Lender and shall
insure a valid first Lien in favor of Lender on the Property covered thereby,
subject only to those exceptions acceptable to Lender and its counsel. Borrower
shall deliver to Lender such other documents, including, without limitation,
as-built survey prints of the real Property, as Lender and its counsel may
request relating to the real Property subject to the Mortgage.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other than Inventory in
transit and motor vehicles, will at all times be kept by Borrower and its
Subsidiaries at one or more of the business locations set forth in Exhibit B
hereto and shall not, without the prior written approval of Lender, be moved
therefrom except, prior to an Event of Default and Lender's acceleration of the
maturity of the Obligations in consequence thereof, for (i) sales of Inventory
in the ordinary course of business; and (ii) removals in connection with
dispositions of Equipment that are authorized by subsection 6.4.2 hereof; and
(iii) the storage of Inventory at locations within the continental United States
other than those shown on Exhibit B if (A) Borrower gives Lender written notice
of the new storage location at least thirty (30) days prior to storing Inventory
at such location, (B) Lender's security interest in such Inventory is and
continues to be a duly perfected, first priority Lien thereon (subject only to
Permitted Liens), (C) neither Borrower's nor Lender's right of entry upon the
premises where such Inventory is stored, or its right to remove the Inventory
therefrom, in any way is restricted, (D) the owner of such premises agrees in
writing pursuant to a waiver agreement, in form and substance acceptable to
Lender, among other things, not to assert any landlord's, bailee's or other Lien
in respect of the Inventory for unpaid rent or storage charges, and (E) all
negotiable documents and receipts in respect of any Collateral maintained at
such premises are delivered promptly to Lender.
6.1.2 Insurance of Collateral. Borrower shall
STL-506421.07
- 15 -
<PAGE>
maintain and pay for insurance upon all Collateral wherever located and with
respect to Borrower's business, covering casualty, hazard, public liability and
such other risks in such amounts and with such insurance companies as are
reasonably satisfactory to Lender. Borrower shall deliver photocopies of such
policies to Lender with satisfactory lender's loss payable endorsements, naming
Lender as sole loss payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may, at its option,
but shall not be required to, procure the same and charge Borrower therefor.
Upon Lender's request, Borrower agrees to deliver to Lender, promptly as
rendered, true copies of all reports made in any reporting forms to insurance
companies.
6.1.3 Protection of Collateral. All expenses of protecting, storing,
warehousing, insuring, handling, maintaining and shipping the Collateral, and
any and all excise, property, sales, and use taxes imposed by any state,
federal, or local authority on any of the Collateral or in respect of the sale
thereof shall be borne and paid by Borrower. If Borrower fails to promptly pay
any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower therefor. Lender shall not be
liable or responsible in any way for the safekeeping of any of the Collateral or
for any loss or damage thereto (except for reasonable care in the custody
thereof while any Collateral is in Lender's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
STL-506421.07
- 16 -
<PAGE>
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts. On or before the 20th
day of each month from and after the date hereof, Borrower shall deliver to
Lender, in form acceptable to Lender, a borrowing base certificate relating to
Eligible Accounts, together with a detailed aged trial balance of all Accounts,
as of the last day of the immediately preceding month, with such supporting
materials as Lender shall reasonably request. If reasonably requested by Lender,
or if Borrower deems it advisable, Borrower shall execute and deliver to Lender
borrowing base certificates with respect to Eligible Accounts more frequently
than monthly. Borrower shall keep accurate and complete records of its Accounts
and all payments and collections thereon and shall submit to Lender on such
periodic basis as Lender shall request a sales and collections report for the
preceding period, in form satisfactory to Lender. In addition, the aged trial
balance of all Accounts shall be reconciled to the Borrower's financial
statements on a monthly basis, and a report showing such reconciliation shall be
delivered to Lender.
6.2.2 Taxes. If an Account includes a charge for any tax payable to any
governmental taxing authority, Lender is authorized, in its sole discretion, to
pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower therefor, provided, however that Lender shall
not be liable for any taxes to any governmental taxing authority that may be due
by Borrower.
6.2.3 Account Verification. Whether or not a Default or an Event of Default
has occurred, any of Lender's officers, employees or agents shall have the
right, at any time or times hereafter, in the name of Lender, any designee of
Lender or Borrower, to verify the validity, amount or any other matter relating
to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall
cooperate fully with Lender in an effort to facilitate and promptly conclude any
such verification process.
6.2.4 Maintenance of Dominion Account. Borrower shall maintain a Dominion
Account pursuant to a lockbox arrangement acceptable to Lender with such banks
as may be selected by Borrower and be acceptable to Lender. Borrower shall issue
to all of such banks an irrevocable letter of instruction directing such banks
to deposit all payments or other remittances received in the lockbox to the
Dominion Account for application on account of the Obligations. All funds
deposited in the Dominion Account shall immediately become the property of
Lender and Borrower shall obtain the agreement by such banks in favor of Lender
to waive any offset rights against the funds so deposited.
STL-506421.07
-17-
<PAGE>
Lender assumes no responsibility for such lockbox arrangement, including,
without limitation, any claim of accord and satisfaction or release with respect
to deposits accepted by any bank thereunder.
6.2.5 Collection of Accounts, Proceeds of Collateral. All remittances
received by Borrower on account of Accounts, together with the proceeds of any
other Collateral, shall be held as Lender's property by Borrower as trustee of
an express trust for Lender's benefit and Borrower shall immediately deposit
same in kind in the Dominion Account. Lender retains the right at all times
after the occurrence of a Default or an Event of Default to notify Account
Debtors that Accounts have been assigned to Lender and to collect Accounts
directly in its own name and to charge the collection costs and expenses,
including attorneys' fees to Borrower.
6.3 Administration of Inventory. At such times as Lender may reasonably
request, but at least once each month not later than the 20th day of the month,
Borrower shall deliver a borrowing base certificate with respect to Eligible
Inventory (as of the last day of the immediately preceding month), in form and
detail reasonably satisfactory to Lender and with such supporting materials as
Lender shall reasonably request. In addition, Borrower shall also deliver
therewith a reconciliation of the Eligible Inventory shown on such borrowing
base certificate to Borrower's inventory shown on its financial statements.
Borrower shall conduct a physical inventory no less frequently than annually and
shall provide to Lender, if requested, a report based on each such physical
inventory promptly thereafter, together with such supporting information as
Lender shall request.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall keep accurate
records itemizing and describing the kind, type, quality, quantity and value of
its Equipment and all dispositions made in accordance with subsection 6.4.2
hereof, and shall furnish Lender with a current schedule containing the
foregoing information if requested by Lender. Immediately on request therefor by
Lender, Borrower shall deliver to Lender any and all evidence of ownership, if
any, of any of the Equipment.
6.4.2 Dispositions of Equipment. Borrower will not sell, lease or otherwise
dispose of or transfer any of the Equipment or any part thereof without the
prior written consent of Lender; provided, however, that the foregoing
restriction shall not apply, for so long as no Default or Event of Default
exists, to (i) dispositions of Equipment which, in the aggregate during any
consecutive twelve-month period, has a fair market
STL-506421.07
- 18 -
<PAGE>
value or book value, whichever is less, of $200,000 or less, provided that all
proceeds thereof are remitted to Lender for application to the Loans, or (ii)
replacements of Equipment that is substantially worn, damaged or obsolete with
Equipment of like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any disposition of the
Equipment that is to be replaced, the replacement Equipment shall be free and
clear of Liens other than Permitted Liens.
6.5 Payment of Charges. All amounts chargeable to Borrower under Section 6
hereof shall be Obligations secured by all of the Collateral, shall be payable
on demand and shall bear interest from the date such advance was made until paid
in full at the rate applicable to Revolving Credit Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, Borrower warrants, represents and
covenants to Lender that:
7.1.1 Organization and Qualification. Each of Borrower and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Each of Borrower and its
Subsidiaries is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in each state or jurisdiction listed on
Exhibit C hereto and in all other states and jurisdictions where the character
of its Properties or the nature of its activities make such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on Borrower.
7.1.2 Corporate Power and Authority Each of Borrower and its Subsidiaries
is duly authorized and empowered to enter into, execute, deliver and perform
this Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of the shareholders of Borrower
or any of its Subsidiaries; (ii) contravene Borrower's or any of its
Subsidiaries' charter, articles or certificate of incorporation or by-laws;
(iii) violate, or cause Borrower or any of its Subsidiaries to be in default
under, any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award in effect having applicability to
Borrower or any of its Subsidiaries; (iv) result in a breach of or constitute a
default under any indenture or loan or credit
STL-506421.07
-19-
<PAGE>
agreement or any other agreement, lease or instrument to which Borrower or any
of its Subsidiaries is a party or by which it or its Properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any Lien
(other than Permitted Liens) upon or with respect to any of the Properties now
owned or hereafter acquired by Borrower or any of its Subsidiaries.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding obligation of each of Borrower and its Subsidiaries enforceable
against it in accordance with its respective terms, except as may be subject to
bankruptcy, insolvency, moratorium or other similar laws in effect affecting
creditors rights generally.
7.1.4 Capital Structure. Exhibit D hereto states (i) the correct name of
each of the Subsidiaries of Borrower, its jurisdiction of incorporation and the
percentage of its Voting Stock owned by Borrower, (ii) the name of each of
Borrower's corporate or joint venture Affiliates and the nature of the
affiliation, (iii) the number, nature and holder of all outstanding Securities
of Borrower and each Subsidiary of Borrower and (iv) the number of authorized,
issued and treasury shares of Borrower and each Subsidiary of Borrower. Borrower
has good title to all of the shares it purports to own of the stock of each of
its Subsidiaries, free and clear in each case of any Lien other than Permitted
Liens. All such shares have been duly issued and are fully paid and
non-assessable. There are no outstanding options to purchase, or any rights or
warrants to subscribe for, or any commitments or agreements to issue or sell, or
any Securities or obligations convertible into, or any powers of attorney
relating to, shares of the capital stock of Borrower or any of its Subsidiaries.
There are no outstanding agreements or instruments binding upon any of
Borrower's shareholders relating to the ownership of its shares of capital
stock.
7.1.5 Corporate Names. Neither Borrower nor any of its Subsidiaries has
been known as or used any corporate, fictitious or trade names except those
listed on Exhibit E hereto. Except as set forth on Exhibit E, neither Borrower
nor any of its Subsidiaries has been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Each of Borrower's and its
Subsidiaries' chief executive office and other places of business are as listed
on Exhibit B hereto. During the preceding one-year period, neither Borrower nor
any of its Subsidiaries has had an office, place of business or agent for
service of process other than as listed on Exhibit B. Except
STL-506421.07
- 20 -
<PAGE>
as shown on Exhibit B, no Inventory is stored with a bailee, warehouseman or
similar party, nor is any Inventory consigned to any Person.
7.1.7 Title to Properties; Priority of Liens. Each of Borrower and its
Subsidiaries has good, indefeasible and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of the Collateral and all of its other Property,
in each case, free and clear of all Liens except Permitted Liens. Borrower has
paid or discharged all lawful claims which, if unpaid, might become a Lien
against any of Borrower's Properties that is not a Permitted Lien. The Liens
granted to Lender under Section 5 hereof are first priority Liens, subject only
to Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining which Accounts are Eligible
Accounts, on all statements and representations made by Borrower with respect to
any Account or Accounts and, with respect to Accounts shown on any borrowing
base certificate as Eligible Accounts, such Accounts satisfy all requirements of
Eligible Accounts.
7.1.9 Equipment. The Equipment is in good operating condition and repair,
and all necessary replacements of and repairs thereto shall be made so that the
value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted. Borrower will not permit any of
the Equipment to become affixed to any real Property leased to Borrower so that
an interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a landlord
waiver or leasehold mortgage in favor of and in form acceptable to Lender, and
Borrower will not permit any of the Equipment to become an accession to any
personal Property other than Equipment that is subject to first priority (except
for Permitted Liens) Liens in favor of Lender.
7.1.10 Financial Statements; Fiscal Year. The Consolidated and
consolidating balance sheets of Borrower and such other Persons described
therein (including the accounts of all Subsidiaries of Borrower for the
respective periods during which a Subsidiary relationship existed) as of June 2,
1996, and the related statements of income, changes in stockholder's equity, and
changes in financial position for the periods ended on such dates, have been
prepared in accordance with GAAP, and present fairly the financial positions of
Borrower and such Persons at such dates and the results of Borrower's operations
for such periods. Since June 2, 1996, there has been no material adverse change
in the condition, financial or otherwise, of Borrower and such other Persons as
shown on the Consolidated
STL-506421.07
-21-
<PAGE>
balance sheet as of such date and no change in the aggregate value of Equipment
and real Property owned by Borrower or such other Persons, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. The fiscal year of Borrower and each of its
Subsidiaries ends on the Sunday nearest the last day of November of each year.
7.1.11 Full Disclosure. The financial statements referred to in subsection
7.1.10 hereof do not, nor does this Agreement or any other written statement of
Borrower to Lender, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading. There is no fact which Borrower has failed to disclose to Lender in
writing which materially affects adversely or, so far as Borrower can now
foresee, will materially affect adversely the Properties, business, prospects,
profits or condition (financial or otherwise) of Borrower or any of its
Subsidiaries or the ability of Borrower or its Subsidiaries to perform this
Agreement or the other Loan Documents.
7.1.12 Solvent Financial Condition. Each of Borrower and its Subsidiaries
is now and, after giving effect to the Loans to be made and the Letters of
Credit and LC Guaranties to be issued hereunder, at all times will be, Solvent.
7.1.13 Surety Obligations. Except for the RSI Guaranty, neither Borrower
nor any of its Subsidiaries is obligated as surety or indemnitor under any
surety or similar bond or other contract issued or entered into any agreement to
assure payment, performance or completion of performance of any undertaking or
obligation of any Person.
7.1.14 Taxes. Borrower's federal tax identification number is 38-2266858.
The federal tax identification number of each of Borrower's Subsidiaries is
shown on Exhibit F hereto. Borrower and each of its Subsidiaries has filed all
federal, state and local tax returns and other reports it is required by law to
file and has paid, or made provision for the payment of, all taxes, assessments,
fees, levies and other governmental charges upon it, its income and Properties
as and when such taxes, assessments, fees, levies and charges that are due and
payable, unless and to the extent any thereof are being actively contested in
good faith and by appropriate proceedings and Borrower maintains reasonable
reserves on its books therefor. The provision for taxes on the books of Borrower
and its Subsidiaries are adequate for all years not closed by applicable
statutes, and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage commissions, finder's
fees or investment banking fees in
STL-506421.07
- 22 -
<PAGE>
connection with the transactions contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses. Except as otherwise
disclosed in Exhibit G, each of Borrower and its Subsidiaries owns or possesses
all the patents, trademarks, service marks, trade names, copyrights and licenses
necessary for the present and planned future conduct of its business without any
known conflict with the rights of others. All such patents, trademarks, service
marks, tradenames, copyrights, licenses and other similar rights are listed on
Exhibit G hereto.
7.1.17 Governmental Consents. Each of Borrower and its Subsidiaries has,
and is in good standing with respect to, all governmental consents, approvals,
licenses, authorizations, permits, certificates, inspections and franchises
necessary to continue to conduct its business as heretofore or proposed to be
conducted by it and to own or lease and operate its Properties as now owned or
leased by it, except where the failure to have such consents, approvals,
authorizations, permits, certificates, inspections or franchises, individually
or in the aggregate, would not have a material adverse effect on Borrower's
business operations or financial condition.
7.1.18 Compliance with Laws. Each of Borrower and its Subsidiaries has duly
complied with, and its Properties, business operations and leaseholds are in
compliance in all material respects with, the provisions of all federal, state
and local laws, rules and regulations applicable to Borrower or such Subsidiary,
as applicable, its Properties or the conduct of its business and there have been
no citations, notices or orders of noncompliance issued to Borrower or any of
its Subsidiaries under any such law, rule or regulation, except where such
noncompliance will not have a material adverse effect on Borrower's business
operations or financial condition. Each of Borrower and its Subsidiaries has
established and maintains an adequate monitoring system to insure that it
remains in material compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced in violation of the
Fair Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended.
7.1.19 Restrictions. Neither Borrower nor any of its Subsidiaries is a
party or subject to any contract, agreement, or charter or other corporate
restriction, which materially and adversely affects its business or the use or
ownership of any of its Properties. Neither Borrower nor any of its Subsidiaries
is a party or subject to any contract or agreement which restricts its right or
ability to incur Indebtedness, other than as set forth on Exhibit H hereto, none
of which prohibit the execution of or compliance with this Agreement or the
other Loan Documents by Borrower or any of its Subsidiaries, as applicable.
STL-506421.07
- 23 -
<PAGE>
7.1.20 Litigation. Except as set forth on Exhibit I hereto, there are no
actions, suits, proceedings or investigations pending, or to the knowledge of
Borrower, threatened, against or affecting Borrower or any of its Subsidiaries,
or the business, operations, Properties, prospects, profits or condition of
Borrower or any of its Subsidiaries. Neither Borrower nor any of its
Subsidiaries is in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition exists which
would, upon or after the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of Default. Neither
Borrower nor any of its Subsidiaries is in default, and no event has occurred
and no condition exists which constitutes, or which with the passage of time or
the giving of constitute, a default in the payment Person for Money Borrowed.
7.1.22 Leases. Exhibit J hereto is a complete listing of all capitalized
leases of Borrower and its Subsidiaries and Exhibit K hereto is a complete
listing of all operating leases of Borrower and its Subsidiaries. Each of
Borrower and its Subsidiaries is in full compliance with all of the terms of
each of its respective capitalized and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit L hereto, neither
Borrower nor any of its Subsidiaries has any Plan. Borrower and each of its
Subsidiaries is in material compliance with the requirements of ERISA and the
regulations promulgated thereunder with respect to each Plan. No fact or
situation that could result in a material adverse change in the financial
condition of Borrower or any of its Subsidiaries exists in connection with any
Plan. Neither Borrower nor any of its Subsidiaries has any withdrawal liability
in connection with a Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or, to Borrower's knowledge,
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower or any of its Subsidiaries
and any customer or any group of customers whose purchases individually or in
the aggregate are material to the business of Borrower or any of its
Subsidiaries, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially affect
adversely Borrower or any of its Subsidiaries or prevent Borrower or any of its
Subsidiaries from
STL-506421.07
- 24 -
<PAGE>
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
7.1.25 Labor Relations. Except as described on Exhibit M hereto, neither
Borrower nor any of its Subsidiaries is a party to any collective bargaining
agreement. There are no material grievances, disputes or controversies with any
union or any other organization of Borrower's or any of its Subsidiaries'
employees, or threats of strikes, work stoppages or any asserted pending demands
for collective bargaining by any union or organization.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's or its Subsidiaries' business or operations
that would render the information in any exhibit attached hereto either
inaccurate, incomplete or misleading, so long as Lender has consented to such
changes or such changes are expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto, until such time as all the Obligations are paid and performed
in full, all the Collateral is released, and Lender shall have no further
potential liability hereunder.
SECTION B. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender, from time
to time, as often as may be reasonably requested, but only during normal
business hours and upon notice to Borrower, to visit and inspect the Properties
of Borrower and each of its Subsidiaries, inspect, audit and make extracts from
its books and records, and discuss with its officers, its employees and its
independent accountants, Borrower's and each of its Subsidiaries' business,
assets, liabilities, financial condition, business prospects and results of
operations.
STL-506421.07
- 25 -
<PAGE>
8.1.2 Notices. Promptly notify Lender in writing of the occurrence of any
event or the existence of any fact which renders any representation or warranty
in this Agreement or any of the other Loan Documents inaccurate, incomplete or
misleading.
8.1.3 Financial Statements. Keep, and cause each Subsidiary to keep,
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with GAAP reflecting all its
financial transactions; and cause to be prepared and furnished to Lender the
following (all to be prepared in accordance with GAAP applied on a consistent
basis, unless Borrower's certified public accountants concur in any change
therein and such change is disclosed to Lender and is consistent with GAAP):
(i) not later than 120 days after the close of each fiscal year of
Borrower, unqualified audited financial statements of Harrow Industries and
Harrow Delaware, and their respective Subsidiaries as of the end of such
year, each on a Consolidated and consolidating basis, certified by a firm
of independent certified public accountants of recognized standing selected
by Borrower but acceptable to Lender (except for a qualification for a
change in accounting principles with which the accountant concurs);
(ii) not later than 30 days after the end of each month hereafter,
including the last month of Borrower's fiscal year, unaudited interim
financial statements of Harrow Industries and Borrower, and their
respective Subsidiaries as of the end of such month and of the portion of
Borrower's financial year then elapsed, on a Consolidated and consolidating
basis, certified by the principal financial officer of each such company,
as appropriate, as prepared in accordance with GAAP and fairly presenting
the Consolidated financial position and results of operations of such
companies for such month and period subject only to changes from audit and
year-end adjustments and except that such statements need not contain
notes;
(iii) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements, financial statements or reports which
Harrow Industries or any of its Subsidiaries has made available to its
shareholders and copies of any regular, periodic and special reports or
registration statements which Harrow Industries or any of its Subsidiaries
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange;
STL-506421.07
- 26 -
<PAGE>
(iv) promptly, upon request by Lender, after the filing thereof,
copies of any annual report to be filed with ERISA in connection with each
Plan; and
(v) such other data and information (financial and otherwise) as
Lender, from time to time, may reasonably request, bearing upon or related
to the Collateral or Harrow Industries' and each of its Subsidiaries'
financial condition or results of operations.
Within 120 days of the delivery of the financial statements described in
clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy of
the accountants' letter to management that is prepared in connection with such
financial statements and also shall cause to be prepared and shall furnish to
Lender a certificate of the aforesaid certified public accountants certifying to
Lender that, based upon their examination of the financial statements of Harrow
Industries and Harrow Delaware, and their respective Subsidiaries, performed in
connection with their examination of said financial statements, they are not
aware of any Default or Event of Default, or, if they are aware of such Default
or Event of Default, specifying the nature thereof, and acknowledging, in a
manner satisfactory to Lender, that they are aware that Lender is relying on
such financial statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the quarterly and year-end financial
statements described above, or more frequently if requested by Lender, Borrower
shall cause to be prepared and furnished to Lender a Compliance Certificate in
the form of Exhibit N hereto executed by the Chief Financial Officer of
Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender with copies of all
agreements between Borrower or any of its Subsidiaries and any landlord or
warehouseman which owns any premises at which any Inventory may, from time to
time, be kept.
8.1.5 Guarantor Financial Statements. Deliver or cause to be delivered to
Lender financial statements for each Guarantor in form and substance
satisfactory to Lender at such intervals and covering such time periods as
Lender may request.
8.1.6 Projections. No later than 30 days prior to the end of each fiscal
year of Borrower, deliver to Lender Projections of Borrower and RSI for the
forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by
month.
8.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:
STL-506421.07
- 27 -
<PAGE>
8.2.1 Mergers; Consolidations; Acquisitions. Except for a merger of Harrow
Corporation into Harrow Industries, merge or consolidate, or permit any
Subsidiary of Borrower to merge or consolidate, with any Person, except a
consolidation or merger involving only Borrower and RSI in which Borrower is the
sole surviving entity; nor acquire, nor permit any of its Subsidiaries to
acquire, all or any substantial part of the Properties of any Person.
8.2.2 Loans. Make, or permit any Subsidiary of Borrower to make, any loans
or other advances of money (other than for salary, travel advances, advances
against commissions and other similar advances in the ordinary course of
business, and advances permitted by Section 4 of the Distribution Agreement) to
any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist, or
permit any Subsidiary of Borrower to create, incur or suffer to exist, any
Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt existing on the date of this Agreement;
(iii) Indebtedness of any Subsidiary of Borrower to Borrower;
(iv) accounts payable to trade creditors and current operating
expenses (other than for Money Borrowed) which are not aged more than 120
days from billing date or more than 30 days from the due date, in each case
incurred in the ordinary course of business and paid within such time
period, unless the same are being actively contested in good faith and by
appropriate and lawful proceedings; and Borrower or such Subsidiary shall
have set aside such reserves, if any, with respect thereto as are required
by GAAP and deemed adequate by Borrower or such Subsidiary and its
independent accountants;
(v) Obligations to pay Rentals permitted by subsection 8.2.13;
(vi) Permitted Purchase Money Indebtedness;
(vii) Capitalized Lease Obligations in connection with certain leases,
in an aggregate amount not to exceed $1,000,000;
(viii) The Intercompany Note as in effect on the
STL-506421.07
- 28 -
<PAGE>
date hereof;
(ix) obligations under the Consulting Agreement;
(x) contingent liabilities arising out of endorsements of checks and
other negotiable instruments for deposit or collection in the ordinary
course of business; and
(xi) Indebtedness not included in paragraphs (i) through (x) above
which does not exceed at any time, in the aggregate, the sum of $300,000.
8.2.4 Affiliate Transactions. Enter into, or be a party to, or permit any
Subsidiary of Borrower to enter into or be a party to, any transaction with any
Affiliate of Borrower or stockholder, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's or such Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower or
such Subsidiary.
8.2.5 Limitation on Liens. Create or suffer to exist, or permit any
Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant to any of
the provisions of ERISA) not yet due, or being contested in the manner
described in subsection 7.1.14 hereto, but only if in Lender's judgment
such Lien does not adversely affect Lender's rights or the priority of
Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of Borrower's business by
operation of law or regulation, but only if payment in respect of any such
Lien is not at the time required and such Liens do not, in the aggregate,
materially detract from the value of the Property of Borrower or materially
impair the use thereof in the operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
STL-506421.07
- 29 -
<PAGE>
(v) Liens securing Indebtedness of one of Borrower's Subsidiaries to
Borrower or another such Subsidiary;
(vi) such other Liens as appear on Exhibit 0 hereto; and
(vii) such other Liens as Lender may hereafter approve in writing.
8.2.6 Subordinated Debt. Make, or permit any Subsidiary of Borrower to
make, any payment of any part or all of any Subordinated Debt or take any other
action or omit to take any other action in respect of any Subordinated Debt,
except in accordance with the applicable subordination agreement relative
thereto and the prepayment of up to $12,000,000 of the outstanding principal
amount of the Intercompany Note as provided in subsection 1.1.2 hereof.
8.2.7 Distributions. Make, or permit any Subsidiary to make, any
Distributions except as provided in the Distribution Agreement.
8.2.8 Capital Expenditures. Make Capital Expenditures (including, without
limitation, by way of capitalized leases) which, in the aggregate, as to
Borrower and its Subsidiaries, exceed $6,000,000 during any fiscal year of
Borrower.
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of any of, or
permit any Subsidiary of Borrower to sell, lease or otherwise dispose any of,
its Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of business for so long as no Event of Default
exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of
Borrower or (iii) dispositions expressly authorized by this Agreement.
8.2.10 Stock of Subsidiaries. Permit any of its Subsidiaries to issue any
additional shares of its capital stock except director's qualifying shares.
8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
8.2.12 Restricted Investment. Make or have, or permit any Subsidiary of
Borrower to make or have, any Restricted Investment.
STL-506421.07
-30-
<PAGE>
8.2.13 Leases. Become, or permit any of its Subsidiaries to become, a
lessee under any operating lease (other than a lease under which Borrower or any
of its Subsidiaries is lessor) of Property if the aggregate Rentals payable
during any current or future period of 12 consecutive months under the lease in
question and all other leases under which Borrower or any of its Subsidiaries is
then lessee would exceed $4,000,000. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.
8.2.14 Tax Consolidation. File or consent to the filing of any consolidated
income tax return with any Person other than Harrow Industries, Harrow
Corporation, Harrow Delaware, Harrow Group International, and RSI.
8.2.15 Compensation. Except as set forth on Exhibit 8.2.15 and the
incentive compensation paid pursuant to the terms of the Executive Management
Incentive Plan dated December 1, 1990, as in effect on the date hereof but with
such reasonable amendments to the amounts payable thereunder as may be made from
time to time, permit the total annual compensation (including, without
limitation, salaries, fees, bonuses, commissions and other payments, whether
direct or indirect, in money, or otherwise) of its officers, shareholders and
directors to exceed during any fiscal year of Borrower 110% of the amount paid
during the preceding fiscal year.
8.3 Specific Financial Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.3.1 Book Net Worth. Maintain at all times a Consolidated book net worth,
determined in accordance with GAAP, of not less than the amounts shown below for
the period corresponding thereto:
Period Amount
Fiscal Year 1996 $1,000,000
Fiscal Year 1997 $1,000,000
Fiscal Year 1998 $3,000,000
Fiscal Year 1999 $5,000,000
Fiscal Year 2000 $7,000,000
Fiscal Year 2001 $9,000,000
8.3.2 Current Ratio. Maintain at all times a ratio
STL-506421.07
-31-
<PAGE>
of Consolidated Current Assets to Consolidated Current Liabilities of not less
than 1.5 to 1.0.
8.3.3 Profitability. Achieve Consolidated EBIT of not less than the amount
shown below during the period corresponding thereto:
Period Amount
First Fiscal Quarter of each Fiscal Year $1,600,000
Second Fiscal Quarter of each Fiscal Year $2,700,000
Third Fiscal Quarter of each Fiscal Year $2,000,000
Fourth Fiscal Quarter of each Fiscal Year $3,200,000
Each Fiscal Year $9,500,000
8.3.4 Interest Coverage. Maintain a ratio of Consolidated EBIT to
Consolidated Interest Expense of not less than the ratio shown below for the
period corresponding thereto:
Period Ratio
Third Fiscal Quarter of Fiscal Year 1996 1.18 to 1.0
Fourth Fiscal Quarter of Fiscal Year 1996 2.13 to 1.0
First Fiscal Quarter of each Fiscal Year
after Fiscal Year 1996 1.10 to 1.0
Second Fiscal Quarter of each Fiscal Year
after Fiscal Year 1996 1.80 to 1.0
Third Fiscal Quarter of each Fiscal Year
after Fiscal Year 1996 1.30 to 1.0
Fourth Fiscal Quarter of each Fiscal Year
after Fiscal Year 1996 2.30 to 1.0
8.3.5 Cash Flow. Maintain a ratio of Consolidated Cash Flow to Consolidated
Fixed Charges of not less than the ratio shown below for the period
corresponding thereto:
Period Ratio
Fiscal Year 1996 1.0 to 1.0
Fiscal Year 1997 1.0 to 1.0
Fiscal Year 1998 1.1 to 1.0
Fiscal Year 1998 and thereafter 1.2 to 1.0
STL-506421.07
-32-
<PAGE>
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make any
Loan under this Agreement unless and until each of the following conditions has
been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments, certificates and opinions of Borrower's counsel as Lender and its
counsel shall require in connection therewith from time to time, all in form and
substance satisfactory to Lender and its counsel.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set forth in the
other Loan Documents shall have been satisfied.
9.4 Availability. Lender shall have determined that immediately after
Lender has made the initial Loans and issued the initial Letters of Credit and
LC Guaranties contemplated hereby, and paid all closing costs incurred in
connection with the transactions contemplated hereby, Availability shall not be
less than $3,000,000.
9.5 No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby.
9.6 Subordinated Debt. Lender shall have determined that immediately after
Lender has made the initial Loans and issued the initial Letters of Credit and
LC Guaranties contemplated hereby, Borrower shall have no less than $26,000,000
of Subordinated Debt.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
STL-506421.07
- 33 -
<PAGE>
10.1.1 Payment of Notes. Borrower shall fail to pay any installment of
principal, interest or premium, if any, owing on the Term Note on or within 5
days of the due date of such installment.
10.1.2 Payment of Other Obligations. Borrower shall fail to pay any of the
Obligations that are not evidenced by the Term Note on or within 5 days of the
due date thereof (whether due at stated maturity, on demand, upon acceleration
or otherwise).
10.1.3 Misrepresentations. Any representation, warranty or other statement
made or furnished to Lender by or on behalf of Borrower, any Subsidiary of
Borrower or Guarantor in this Agreement, any of the other Loan Documents or any
instrument, certificate or financial statement furnished in compliance with or
in reference thereto proves to have been false or misleading in any material
respect when made or furnished or when reaffirmed pursuant to Section 7.2
hereof.
10.1.4 Breach of Specific Covenants. Borrower shall fail or neglect to
perform, keep or observe any covenant contained in Sections 5.2, 5.3, 6.1.1,
6.2, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall fail or neglect to
perform, keep or observe any covenant contained in this Agreement (other than a
covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's satisfaction within
30 days after the sooner to occur of Borrower's receipt of notice of such breach
from Lender or the date on which such failure or neglect first becomes known to
any officer of Borrower.
10.1.6 Default Under Security Documents/Other Agreements. Any event of
default shall occur under, or Borrower shall default in the performance or
observance of any term, covenant, condition or agreement contained in, any of
the Security Documents or the Other Agreements and such default shall continue
beyond any applicable grace period.
10.1.7 Other Defaults. There shall occur any default or event of default on
the part of Borrower under any agreement, document or instrument to which
Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) if the
payment or maturity of such Indebtedness is accelerated in consequence of such
event of default or demand for payment of such Indebtedness is made.
STL-506421.07
-34-
<PAGE>
10.1.8 Uninsured Losses. Any material loss, theft, damage or destruction of
any of the Collateral not fully covered (subject to such deductibles as Lender
shall have permitted) by insurance.
10.1.9 Insolvency and Related Proceedings. Borrower or any Guarantor shall
cease to be Solvent or shall suffer the appointment of a receiver, trustee,
custodian or similar fiduciary, or shall make an assignment for the benefit of
creditors, or any petition for an order for relief shall be filed by or against
Borrower or any Guarantor under the Bankruptcy Code (if against Borrower or any
Guarantor, the continuation of such proceeding for more than 30 days), or
Borrower or any Guarantor shall make any offer of settlement, extension or
composition to their respective unsecured creditors generally.
10.1.10 Business Disruption; Condemnation. There shall occur a cessation of
a substantial part of the business of Borrower, any Subsidiary of Borrower or
any Guarantor for a period which significantly affects Borrower's or such
Guarantor's capacity to continue its business, on a profitable basis; or
Borrower, any Subsidiary of Borrower or any Guarantor shall suffer the loss or
revocation of any material license or permit now held or hereafter acquired by
Borrower or such Guarantor which is necessary to the continued or lawful
operation of its business; or Borrower or any Guarantor shall be enjoined,
restrained or in any way prevented by court, governmental or administrative
order from conducting all or any material part of its business affairs; or any
material lease or agreement pursuant to which Borrower or any Guarantor leases,
uses or occupies any Property shall be canceled or terminated prior to the
expiration of its stated term and no substitute lease shall have been executed;
or any part of the Collateral shall be taken through condemnation or the value
of such Property shall be impaired through condemnation and the proceeds thereof
shall not be considered adequate substitute collateral by Lender, based upon its
reasonable credit judgment.
10.1.11 Change of Ownership. There shall occur a change of ownership of
more than forty-nine percent (49%) of the voting stock of Harrow Industries, or
Harrow Industries shall cease to own and control, beneficially and of record,
directly or indirectly through the ownership of one or more subsidiaries, 100%
of the issued and outstanding capital stock (voting and nonvoting) of Borrower.
10.1.12 ERISA. A Reportable Event shall occur which Lender, in its sole
discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the
STL-506421.07
-35-
<PAGE>
appropriate United States district court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed, or
if Borrower, any Subsidiary of Borrower or any Guarantor is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's, such Subsidiary's or such
Guarantor's complete or partial withdrawal from such Plan.
10.1.13 Challenge to Agreement. Borrower, any Subsidiary of Borrower or any
Guarantor, or any Affiliate of any of them, shall challenge or contest in any
action, suit or proceeding the validity or enforceability of this Agreement, or
any of the other Loan Documents, the legality or enforceability of any of the
Obligations or the perfection or priority of any Lien granted to Lender.
10.1.14 Repudiation of or Default Under Guaranty Agreement. Any Guarantor
shall revoke or attempt to revoke the Guaranty Agreement signed by such
Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be
in default under the terms thereof.
10.1.15 Default under Distribution Agreement or Pledge Agreement. Harrow
Industries, Harrow Corporation, Harrow Delaware or Borrower shall be in default
in any respect under the Distribution Agreement, or Harrow Delaware shall be in
default in any respect under its Pledge Agreement in favor of Lender dated as of
April 5, 1991.
10.1.16 Criminal Forfeiture. Borrower or any Guarantor or any Subsidiary of
Borrower or any Guarantor shall be criminally indicted or convicted under any
law that could lead to a forfeiture of any Property of Borrower or any Guarantor
or any Subsidiary of Borrower or any Guarantor.
10.1.17 Judgments. Any material money judgment, writ of attachment or
similar process is filed against Borrower, any Subsidiary of Borrower or any
Guarantor, or any of their respective Property.
10.2 Acceleration of the Obligations. Without in any way limiting the right
of Lender to demand payment of any portion of the Obligations payable on demand
in accordance with Section 3.2 hereof, upon or at any time after the occurrence
of an Event of Default, all or any portion of the Obligations shall, at the
option of Lender and without presentment, demand protest or further notice by
Lender, become at once due and payable and Borrower shall forthwith pay to
Lender, the full amount of such Obligations, provided, that upon the occurrence
of an Event of Default specified in subsection 10.1.10 hereof, all of the
STL-506421.07
-36-
<PAGE>
Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise from time to time the following rights and
remedies:
10.3.1 All of the rights and remedies of a secured party under the Code or
under other applicable law, and all other legal and equitable rights to which
Lender may be entitled, all of which rights and remedies shall be cumulative and
shall be in addition to any other rights or remedies contained in this Agreement
or any of the other Loan Documents, and none of which shall be exclusive.
10.3.2 The right to take immediate possession of the Collateral, and to (i)
require Borrower to assemble the Collateral, at Borrower's expense, and make it
available to Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) enter any premises where any of the
Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any Collateral in
its then condition, or after any further manufacturing or processing thereof, at
public or private sale or sales, with such notice as may be required by law, in
lots or in bulk, for cash or on credit, all as Lender, in its sole discretion,
may deem advisable. Borrower agrees that 10 days written notice to Borrower of
any public or private sale or other disposition of Collateral shall be
reasonable notice thereof, and such sale shall be at such locations as Lender
may designate in said notice. Lender shall have the right to conduct such sales
on Borrower's premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Lender shall have the right
to sell, lease or otherwise dispose of the Collateral, or any part thereof, for
cash, credit or any combination thereof, and Lender may purchase all or any part
of the Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may set off the amount of such price
against the Obligations. The proceeds realized from the sale of any Collateral
may be applied, after allowing 2 Business Days for collection, first to the
costs, expenses and attorneys' fees incurred by Lender in collecting the
Obligations, in enforcing the rights of Lender under the Loan Documents and in
collecting, retaking, completing, protecting, removing, storing, advertising for
sale, selling and delivering any Collateral, second to the interest due upon any
of the Obligations; and third, to the principal of the Obligations.
STL-506421.07
-37-
<PAGE>
If any deficiency shall arise, Borrower and each Guarantor shall remain jointly
and severally liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, tradenames, trademarks and advertising matter, or any Property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit.
10.3.5 Lender may, at its option, require Borrower to deposit with Lender
funds equal to the LC Amount and, if Borrower fails to promptly make such
deposit, Lender may advance such amount as a Revolving Credit Loan (whether or
not an Overadvance is created thereby). Any such deposit or advance shall be
held by Lender as a reserve to fund future payments on such LC Guaranties and
future drawings against such Letters of Credit. At such time as all LC
Guaranties have been paid or terminated and all Letters of Credit have been
drawn upon or expired, any amounts remaining in such reserve shall be applied
against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrower.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrower
contained in this Agreement and the other Loan Documents, or in any document
referred to herein or contained in any agreement supplementary hereto or in any
schedule or in any Guaranty Agreement given to Lender or contained in any other
agreement between Lender and Borrower, heretofore, concurrently, or hereafter
entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrower herein contained. The failure or delay of Lender to require strict
performance by Borrower of any provision of this Agreement or to exercise or
enforce any rights, Liens, powers, or remedies hereunder or under any of the
aforesaid agreements or other documents or security or Collateral shall not
operate as a waiver of such performance, Liens, rights, powers and remedies, but
all such requirements, Liens, rights, powers, and remedies shall continue in
full force and effect until all Loans and all other Obligations owing or to
become owing from Borrower to Lender shall have been fully satisfied. None of
the undertakings, agreements, warranties, covenants and representations of
Borrower contained in this Agreement or any of the other Loan Documents and no
Event of Default by Borrower under this Agreement or any other Loan Documents
shall be deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing specifying such suspension
or waiver and is
STL-506421.07
-38-
<PAGE>
signed by a duly authorized representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
11.1.1 At such time or times upon or after the occurrence of a Default or
an Event of Default as Lender or said agent, in its sole discretion, may
determine, endorse Borrower's name on any checks, notes, acceptances, drafts,
money orders or any other evidence of payment or proceeds of the Collateral
which come into the possession of Lender or under Lender's control.
11.1.2 At such time or times upon or after the occurrence of an Event of
Default as Lender or its agent in its sole discretion may determine: (i) demand
payment of the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral; (xi)
STL-506421.07
-39-
<PAGE>
make and adjust claims under policies of insurance; and (xii) do all other acts
and things necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold Lender
harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure to observe, perform
or discharge Borrower's duties hereunder. In addition, Borrower shall defend
Lender against and save it harmless from all claims of any Person with respect
to the Collateral. Without limiting the generality of the foregoing, these
indemnities shall extend to any claims asserted against Lender by any Person
under any Environmental Laws or similar laws by reason of Borrower's or any
other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section 11.2
shall survive the payment in full of the Obligations and the termination of this
Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In selecting any Participating Lender hereunder, Lender
will consult with Borrower as to the identity of potential Participating Lenders
and will not unreasonably withhold its consent to a Participating Lender
recommended by Borrower. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrower agrees that it will
use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower and its Subsidiaries to any
potential participant or assignee.
STL-506421.07
- 40 -
<PAGE>
11.4 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.8 Notice. Except as otherwise provided herein, all notices, requests and
demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:
If to Lender: Fleet Capital Corporation
20800 Swenson Drive, Suite 350
Waukesha, Wisconsin 53186
Attention: Edward M. Bartkowski
Facsimile No.: (414) 798-4882
STL-506421.07
-41-
<PAGE>
With a copy to: Husch & Eppenberger
100 N. Broadway, Suite 1300
St. Louis, Missouri 63102
Attention: Maury B. Poscover, Esq.
Facsimile No.: (314) 421-0239
If to Borrower: Harrow Products, Inc.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
Attention: President
Facsimile No.: 616-942-2170
With a copy to: Curtis, Mallet-Prevost, Colt & Mosle
101 Park Avenue
New York, New York 10178
Attention: John N. Marden, Esq.
Facsimile No.: 212-697-1559
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof
shall not be effective until received by Lender.
11.9 Lender's Consent. Except as otherwise expressly provided herein,
whenever Lender's consent is required to be obtained under this Agreement, any
of the Other Agreements or any of the Security Documents as a condition to any
action, inaction, condition or event, Lender shall exercise reasonable credit
judgment in determining whether to give or withhold such consent, and may
condition its consent upon the giving of additional collateral security for the
Obligations, the payment of money or such other matters as it deems appropriate
in the exercise of its reasonable credit judgment.
11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender to
respond to usual and customary credit inquiries from third parties concerning
Borrower or any of its Subsidiaries.
11.11 Time of Essence. Time is of the essence of this Agreement, the Other
Agreements and the Security Documents.
11.12 Entire. This Agreement and the other Loan Documents, together with
all other instruments, agreements and certificates executed by the parties in
connection therewith or with reference thereto, embody the entire understanding
and agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written.
STL-506421.07
- 42 -
<PAGE>
11.13 Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS: PROVIDED,
HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION
OTHER THAN ILLINOIS, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD,
MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND
THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF ILLINOIS. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS
OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT ANY STATE COURT
LOCATED IN COOK COUNTY, ILLINOIS, OR, AT LENDER'S OPTION, ANY UNITED STATES
DISTRICT COURT LOCATED IN COOK COUNTY, ILLINOIS, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER
HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL
RECEIPT THEREOF OR 5 DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE
RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR
TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY
OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO
WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT
OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE
STL-506421.07
- 43 -
<PAGE>
COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION
OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; AND
(iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING
WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
(Remainder of page intentionally left blank)
STL-506421.07
- 44 -
<PAGE>
(Signature page of First Amended and Restated Loan and Security Agreement by and
between Harrow Products, Inc., a Delaware corporation, and Fleet Capital
Corporation, a Rhode Island corporation)
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year specified at the beginning of this Agreement.
HARROW PRODUCTS, INC.
By: /s/ John S. Hogan
Name: John S. Hogan
Title: VP & CFO
FLEET CAPITAL CORPORATION
By: /s/ Edward M. Bartkowski
Edward M. Bartkowski
Vice President
STL-506421.07
45 -
<PAGE>
APPENDIX A
GENERAL DEFINITIONS
When used in the First Amended and Restated Loan and Security Agreement
dated as of July 31, 1996, by and between Fleet Capital Corporation and Harrow
Products, Inc., the following terms shall have the following meanings (terms
defined in the singular to have the same meaning when used in the plural and
vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments
and documents, whether now owned or hereafter created or acquired by
Borrower or RSI or in which Borrower or RSI now have or hereafter acquire
any interest.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes
for such fiscal period of Borrower, as reflected on the financial statement
of Borrower supplied to Lender pursuant to subsection 8.1.3 hereof, but
excluding:
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary accrued prior to the date it
became a Subsidiary;
(iv) earnings of any corporation, substantially all the assets of
which have been acquired in any manner by Borrower, realized by such
corporation prior to the date of such acquisition;
(v) net earnings of any business entity (other than a Subsidiary)
in which Borrower has an ownership interest unless such net earnings
shall have actually been received by Borrower in the form of cash
distributions;
(vi) any portion of the net earnings of any Subsidiary which for
any reason is unavailable for payment of dividends to Borrower;
(vii) the earnings of any Person to which any assets of Borrower
shall have been sold, transferred or
STL-506421.06
<PAGE>
disposed of, or into which Borrower shall have merged, or been a party
to any consolidation or other form of reorganization, prior to the
date of such transaction;
(viii) any gain arising from the acquisition of any Securities of
Borrower; and
(ix) any gain arising from extraordinary or nonrecurring items.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
indirectly through one or more intermediaries controls, or is controlled
by, or is under common control with, a Person; (ii) which beneficially owns
or holds 5% or more of any class of the Voting Stock of a Person; or (iii)
5% or more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is beneficially
owned or held by a Person or a Subsidiary of a Person.
Agreement - the First Amended and Restated Loan and Security Agreement
referred to in the first sentence of this Appendix A, all Exhibits thereto
and this Appendix A.
Applicable LIBOR Margin - the margin rate of interest set forth below
opposite the applicable ratio of Borrower's Funded Debt to EBITDA,
calculated on a Consolidated basis, for the six month periods ending May 31
and November 30 of each year (in the table below, "X" is the calculated
amount of the ratio):
Ratio Margin
X greater than or equal to 3.5:1.0 2.00%
3.0:1.0 less than or equal to X less than 3.5:1.0 1.75%
2.5:1.0 less than or equal to X less than 3.0:1.0 1.50%
2.0:1.0 less than or equal to X less than 2.5:1.0 1.25%
X less than 2.0:1.0 1.00%
The applicable margin shall then be effective for the six month
periods beginning June 1 and December 31, respectively, of each year.
Availability - the amount of money which Borrower is entitled to
borrow from time to time as Revolving Credit Loans, such amount being the
difference derived when the sum of the principal amount of Revolving Credit
Loans then outstanding (including any amounts which Lender may have paid
for the account of Borrower pursuant to any of the Loan Documents and which
have not been reimbursed by Borrower) and the LC Amount is subtracted from
the Borrowing Base. If
STL-506421.07
-2-
<PAGE>
the amount outstanding is equal to or greater than the Borrowing Base,
Availability is 0.
Bank - Fleet National Bank.
Barclays - Barclays Business Credit, Inc., a Connecticut corporation.
Base Rate - the rate of interest generally announced or quoted by Bank
from time to time as its base rate for commercial loans, whether or not
such rate is the lowest rate charged by Bank to its most preferred
borrowers; and if such base rate for commercial loans is discontinued by
Bank as a standard, a comparable reference rate designated by Bank as a
substitute therefor shall be the Base Rate.
Base Rate Portion - a Base Rate Term Portion or a Base Rate Revolving
Credit Portion.
Base Rate Revolving Credit Portion - the portion of the Revolving
Credit Loans that is not subject to a LIBOR Option.
Base Rate Term Portion - that portion of the Term Loan that is not
subject to a LIBOR Option.
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(i) $30,000,000 minus the unpaid principal balance of the Term
Loan at such date; or
(ii) an amount equal to:
(a) 85% of the net amount of Eligible Accounts outstanding
at such date; provided, however, that not more than $3,000,000
shall be advanced at any one time against the Borrower's Eligible
Extended Term Accounts and not more than $4,000,000 shall be
advanced at any one time against the Borrower's Eligible Dated
Term Accounts;
PLUS
(b) the lesser of (1) $6,000,000 or (2) 55%, of the value of
Eligible Inventory at such date calculated on the lower of cost
or market, on a first-in, first-out basis.
For purposes hereof, the net amount of Eligible
STL-506421.07
-3-
<PAGE>
Accounts at any time shall be the face amount of such Eligible Accounts
less any and all returns, rebates, discounts (which may, at Lender's
option, be calculated on shortest terms), credits, allowances or excise
taxes of any nature at any time issued, owing, claimed by Account Debtors,
granted, outstanding or payable in connection with such Accounts at such
time.
Business Day - (i) when used with respect to the LIBOR Option, shall
mean a day on which dealings may be effected in deposits of United States
Dollars in the London interbank foreign currency deposits market and on
which Lender is conducting and other banks may conduct business in London,
England, or the State of Illinois, and (ii) when used with respect to any
other provision of the Agreement, any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of Illinois or
is a day on which banking institutions located in such state are closed.
Capital Expenditures - expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than
one year, including the total principal portion of Capitalized Lease
Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Cash Flow - for any period, means Borrower's Consolidated (i) Adjusted
Net Earnings From Operations for such period plus (ii) depreciation and
amortization expenses for such period, plus (iii) deferred taxes for such
period, all as determined in accordance with GAAP.
Closing Date - the date on which all of the conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made or
the initial Letter of Credit or LC Guaranty is issued under the Agreement.
Code - the Uniform Commercial Code as adopted and in force in the
State of Illinois, as from time to time in effect.
Collateral - all of the Property and interests in Property described
in Section 5 of the Agreement, and all other Property and interests in
Property that now or hereafter secure the payment and performance of any of
the
<PAGE>
Obligations.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Consulting Agreement - That certain Consulting/NonCompete Agreement
dated on or about January 4, 1995 among Borrower, RSI and David P.
Sidlauskas.
Copyright Assignment - The Copyright Collateral Assignment executed by
Borrower and dated as of April 5, 1991, by which Borrower assigned to
Barclays and its assigns as security for the obligations noted therein all
of Borrower's right, title and interest in and to certain of its
copyrights.
Copyright Assignment Amendment - the amendment to the Copyright
Assignment to be executed by Borrower in favor of Lender and dated of even
date herewith.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets
shown on a balance sheet at such date in accordance with GAAP except that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities on a balance sheet at such date in accordance with GAAP.
Default - an event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, become an Event of
Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net
proceeds of the sale of Securities.
Distribution Agreement - that certain Distribution Agreement dated as
of April 5, 1991, among Harrow Industries, Harrow Corporation, Harrow
Delaware, Borrower and Lender, as the same may be amended from time to
time.
STL-506421.07
-5-
<PAGE>
Distribution Agreement Amendment - that certain First Amendment to
Distribution Agreement dated of even date herewith, among Harrow
Industries, Harrow Corporation, Harrow Delaware, Borrower and Lender.
Dominion Account - a special account of Lender established by Borrower
pursuant to this Agreement at a bank selected by Borrower, but acceptable
to Lender in its reasonable discretion, and over which Lender shall have
sole and exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, Adjusted Net Earnings From
Operations for such period, plus amounts deducted in the computation
thereof for Interest Expense and for federal, state and local income taxes.
EBITDA - with respect to any fiscal period, the sum of Borrower's
Consolidated net earnings (or loss) before interest expense, taxes,
depreciation and amortization for said period as determined in accordance
with GAAP.
Eligible Account - an Account arising in the ordinary course of
Borrower's or RSI's business (as the case may be) from the sale of goods or
rendition of services which Lender, in its sole credit judgment, deems to
be an Eligible Account. Without limiting the generality of the foregoing,
no Account shall be an Eligible Account if:
(i) it arises out of a sale made by Borrower or RSI to a
Subsidiary or an Affiliate of Borrower or RSI or to a Person
controlled by an Affiliate of either; or
(ii) except for Eligible Dated Term Accounts and Eligible
Extended Term Accounts, it is stated to be due more than 30 days after
the original invoice date;
(iii) it is unpaid for more than 90 days after the original due
date shown on the invoice; or
(iv) 25% or more of the Accounts from the Account Debtor are not
deemed Eligible Accounts hereunder; or
(v) the total unpaid Accounts of the Account Debtor exceed 25% of
the net amount of all Eligible Accounts, to the extent of such excess;
or
(vi) any covenant, representation or
STL-506421.07
-6-
<PAGE>
warranty contained in the Agreement with respect to such Account has
been breached; or
(vii) the Account Debtor is also Borrower's or RSI's creditor or
supplier, or the Account Debtor has disputed liability with respect to
such Account, or the Account Debtor has made any claim with respect to
any other Account due from such Account Debtor to Borrower or RSI, or
the Account otherwise is or may become subject to any right of setoff
by the Account Debtor; or
(viii) the Account Debtor has commenced a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended,
or made an assignment for the benefit of creditors, or a decree or
order for relief has been entered by a court having jurisdiction in
the premises in respect of the Account Debtor in an involuntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other petition or other application for relief under
the federal bankruptcy laws has been filed against the Account Debtor,
or if the Account Debtor has failed, suspended business, ceased to be
Solvent, or consented to or suffered a receiver, trustee, liquidator
or custodian to be appointed for it or for all or a significant
portion of its assets or affairs; or
(ix) it arises from a sale to an Account Debtor outside the
United States or Canada, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable to Lender in its
sole discretion; or
(x) it arises from a sale to the Account Debtor on a bill-
and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(xi) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless Borrower or RSI
(as the case may be) assigns its right to payment of such Account to
Lender, in a manner satisfactory to Lender, so as to comply with the
Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et seq., as
amended); or
(xii) the Account is subject to a Lien other than a Permitted
Lien; or
STL-506421.07
-7-
<PAGE>
(xiii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower or RSI (as
the case may be) and accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or
(xiv) the Account is evidenced by chattel paper or an instrument
of any kind, or has been reduced to judgment; or
(xv) Borrower or RSI has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances
which are made in the ordinary course of business for prompt payment
and which discounts or allowances are reflected in the calculation of
the face value of each invoice related to such Account; or
(xvi) Borrower or RSI has made an agreement with the Account
Debtor to extend the time of payment thereof.
If RSI is in default in any respect under its Guaranty Agreement, then
Accounts of RSI shall not be Eligible Accounts hereunder.
Eligible Dated Term Account. An Account, stated to be due more than 30
days after the original invoice date, arising solely out of the sale of
goods or the rendering of services by Borrower's Corona Clipper division
which would be an Eligible Account but for the application of clause (ii)
of the definition of "Eligible Account" herein, and which is not more than
30 days past due.
Eligible Extended Term Account - An Account, stated to be due more
than 30 days after the original invoice date arising solely out of the sale
of goods or services by Borrower's H.B. Ives, Rutt, FHP or Locknetics
Security Engineering divisions which would be an Eligible Account but for
the application of clause (ii) of the definition of "Eligible Account"
herein, and which remains unpaid for not more than 150 days after the
original invoice date.
Eligible Inventory - such Inventory (other than packaging materials
and supplies) of Borrower or RSI (as the case may be) which Lender, in its
reasonable credit judgment, deems to be Eligible Inventory. Without
limiting the generality of the foregoing, no Inventory shall be Eligible
Inventory if:
STL-506421.07
-8-
<PAGE>
(i) it is not raw materials or finished goods, that are, in
Lender's opinion, readily marketable in its current form; or
(ii) it is not in good, new and saleable condition; or
(iii) it is slow-moving, obsolete or unmerchantable; or
(iv) it does not meet all standards imposed by any applicable
governmental agency or authority; or
(v) it does not conform in all respects to the warranties and
representations set forth in the Agreement,
(vi) it is not at all times subject to Lender's duly perfected,
first priority security interest and no other Lien except a Permitted
Lien; or
(vii) it is not situated at a location in compliance with the
Agreement or is in transit.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or
owned by Borrower or in which Borrower has an interest, whether now owned
or hereafter acquired by Borrower and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
Fixed Charges - for any accounting period, the sum of (i) scheduled
principal payments required to be made during such period in respect to
Indebtedness, plus (ii) Capital
STL-506421.07
-9-
<PAGE>
Expenditures not financed by borrowings under any other financing
arrangement otherwise permitted hereunder during any such period, all as
determined in accordance with GAAP.
Fleming - Robert Fleming & Co. Limited, an English merchant banking
firm.
Florida Facility - the facility utilized by the Borrower's FHP
Manufacturing Division located in Fort Lauderdale, Florida.
Funded Debt - the sum of all Indebtedness of Borrower to Lender, plus
all Subordinated Debt.
GAAP - generally accepted accounting principles in the United States
of America in effect from time to time.
General Intangibles - all personal property of Borrower (including
things in action) other than goods, Accounts, chattel paper, documents,
instruments and money, whether now owned or hereafter created or acquired
by Borrower.
Guarantors - RSI and any other Person who may hereafter guarantee
payment or performance of the whole or any part of the Obligations.
Guarantor Security Agreement - the Security Agreement dated as of
January 4, 1995, executed by RSI, by which RSI, as security for its
obligations to Lender under its Guaranty Agreement, granted to Lender a
security interest in all of RSI's presently owned or hereafter acquired
accounts, inventory, and certain general intangibles.
Guaranty Agreement - the Guaranty executed by RSI and dated January 4,
1995, by which RSI unconditionally guarantees payment of the Obligations.
Harrow Corporation - Harrow Corporation, a Delaware corporation.
Harrow Delaware - Harrow Products, Inc. (Delaware), a Delaware
corporation.
Harrow Industries - Harrow Industries, Inc., a Delaware corporation.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities
STL-506421.07
- 10-
<PAGE>
as shown on the liability side of a balance sheet of such Person
as at the date as of which Indebtedness is to be determined,
including, without limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the
account of such Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Intercompany Note - that certain 13-1/2% Partially Subordinated Note
due April 13, 2002 (No. 2) dated April 18, 1988 in the original principal
amount of $52,500,000, and any note or notes issued in exchange therefor
from time to time.
Interest Expense - with respect to any fiscal period, the interest
expense incurred for such period as determined in accordance with GAAP plus
the Letter of Credit and LC Guaranty fees owing for such period.
Inventory - all inventory of Borrower or RSI, as the case may be,
whether now owned or hereafter acquired including, but not limited to, all
goods intended for sale or lease by Borrower or RSI, as the case may be, or
for display or demonstration; all work in process; all raw materials and
other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or
otherwise used or consumed in Borrower's or RSI's business, as the case may
be; and all documents evidencing and General Intangibles relating to any of
the foregoing, whether now owned or hereafter acquired by Borrower or RSI,
as the case may be.
LC Amount - at any time, the aggregate undrawn face amount of all
Letters of Credit and LC Guaranties then outstanding.
LC Guaranty - any guaranty pursuant to which Lender or any Affiliate
of Lender shall guaranty the payment or performance by Borrower of its
reimbursement obligation under any letter of credit.
Legal Requirement - any requirement imposed upon Lender
STL-506421.07
<PAGE>
by any law of the United States of America or the United Kingdom or by
any regulation, order, interpretation, ruling or official directive
(whether or not having the force of law) of the Board, the Bank of
England or any other board, central bank or governmental or
administrative agency, institution or authority of the United States
of America, the United Kingdom or any political subdivision of either
thereof.
Letter of Credit - any letter of credit issued by Lender or any of
Lender's Affiliates for the account of Borrower.
LIBOR Interest Payment Date - with respect to any LIBOR Revolving
Credit Portion or any LIBOR Term Portion, the last day of each calendar
month during the applicable LIBOR Period.
LIBOR Option - the option granted pursuant to subsection 2.3 to have
the interest on all or any portion of the principal amount of the Revolving
Credit Loans or the Term Loan based on a LIBOR Rate.
LIBOR Period - any period of 30 days, 60 days or 90 days commencing on
a Business Day, selected as provided in subsection 2.3(i); provided,
however that no LIBOR Period shall extend beyond the last day of the
original Term, unless Borrower and Lender have agreed to an extension of
the Original Term beyond the expiration of the LIBOR Period in question and
that, with respect to any LIBOR Term Portion, no applicable LIBOR Period
shall extend beyond the scheduled installment payment date for such LIBOR
Term Portion. If any LIBOR Period so selected shall end on a date that is
not a Business Day, such LIBOR Period shall instead end on the next
preceding or succeeding Business Day as determined by Lender in accordance
with the then current banking practice in London; provided, that Borrower
shall not be required to pay double interest, even though the preceding
LIBOR Period ends and the new LIBOR Period begins on the same day. Each
determination by Lender of the LIBOR Period shall, in the absence of
manifest error, be conclusive.
LIBOR Portion - a LIBOR Revolving Credit Portion or a LIBOR Term
Portion.
LIBOR Rate - with respect to any LIBOR Revolving Credit Portion or
LIBOR Term Portion for the related LIBOR Period, an interest rate per annum
(rounded upwards, if necessary, to the next higher 1/8 of 1%) equal to the
product of (i) the Base LIBOR Rate (as hereinafter defined) multiplied by
STL-506421.07
- 12 -
<PAGE>
(ii) Statutory Reserves. For purposes of this definition, the
term "Base LIBOR Rate" shall mean the rate (rounded to the nearest 1/8
of 1% or, if there is no nearest 1/8 of 1%, the next higher 1/8 of 1%)
at which deposits of U.S. dollars approximately equal in principal
amount to the LIBOR Revolving Credit Portion or the LIBOR Term Portion
specified in the applicable LIBOR Request are offered to Lender by
prime banks in the London interbank foreign currency deposits market
at approximately 11:00 a.m., London time, 2 Business Days prior to the
commencement of such LIBOR Period, for delivery on the first day of
such LIBOR Period. Each determination by Lender of any LIBOR Rate
shall, in the absence of manifest error, be conclusive.
LIBOR Request - a notice in writing (or by telephone confirmed by
telex, telecopy or other facsimile transmission on the same day as the
telephone request) from Borrower to Lender requesting that interest on a
Revolving Credit Loan or a Term Loan be based on the LIBOR Rate,
specifying: (i) the first day of the LIBOR Period; (ii) the length of the
LIBOR Period consistent with the definition of that term; and (iii) the
dollar amount of the LIBOR Revolving Credit Portion or LIBOR Term Portion
consistent with the definition of such terms.
LIBOR Revolving Credit Portion - that portion of the Revolving Credit
Loans specified in a LIBOR Request (including any portion of Revolving
Credit Loans which is being borrowed by Borrower concurrently with such
LIBOR Request) which is not less than $500,000 and is an integral multiple
of $100,000, which does not exceed the outstanding balance of Revolving
Credit Loans not already subject to a LIBOR Option and, which, as of the
date of the LIBOR Request specifying such LIBOR Revolving Credit Portion,
has met the conditions for basing interest on the LIBOR Rate in subsection
2.3 hereof and the LIBOR Period of which was commenced and not terminated.
LIBOR Term Portion - that portion of the Term Loan specified in a
LIBOR Request which is not less than $1,000,000 and is an integral multiple
of $100,000, which does not exceed the outstanding balance of the Term Loan
not already subject to a LIBOR Option and, which, as of the date of the
LIBOR Request specifying such LIBOR Term Portion, has met the conditions
for basing interest on the LIBOR Rate in subsection 2.3 hereof and the
LIBOR Period of which was commenced and not terminated.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such
interest is based on common law,
STL-506421.07
- 13 -
<PAGE>
statute or contract. The term "Lien" shall also include reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
Property. For the purpose of the Agreement, Borrower shall be deemed to be
the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person or
security purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any
such case arising from the lending by any Person of money to Borrower, (A)
which is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (other than accounts payable) or that was
issued or assumed as full or partial payment for Property; (iii)
Indebtedness that constitutes a Capitalized Lease Obligation; (iv)
reimbursement obligations with respect to letters of credit or guaranties
of letters of credit and (v) Indebtedness of Borrower under any guaranty of
obligations that would constitute Indebtedness for Money Borrowed under
clauses (i) through (iii) hereof, if owed directly by Borrower.
Mortgage - the mortgage executed by Borrower and dated as of April 5,
1991, in favor of Lender, by which Borrower granted and conveyed to
Barclays and its assigns, as security for the obligations of Borrower noted
therein, a Lien upon the Florida Facility.
Mortgage Amendment - the amendment to the Mortgage to be executed by
Borrower in favor of Lender and dated of even date herewith.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
STL-506421.07
-14-
<PAGE>
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and
other charges thereon, owing, arising, due or payable from Borrower to
Lender of any kind or nature, present or future, whether or not evidenced
by any note, guaranty or other instrument, whether arising under the
Agreement or any of the other Loan Documents or otherwise whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter
arising and however acquired.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), heretofore, now or
hereafter executed by Borrower, any Subsidiary of Borrower or any other
third party and delivered to Lender in respect of the transactions
contemplated by the Agreement.
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans plus the LC Amount exceeds the Borrowing
Base.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and
who shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Patent Assignment - the Patent Collateral Assignment executed by
Borrower and dated as of April 5, 1991, by which Borrower assigned to
Barclays and its assigns as security for the obligations noted therein all
of Borrower's right, title and interest in and to certain of its patents.
Patent Assignment Amendment - the amendment to the Patent Assignment
to be executed by Borrower in favor of Lender and dated of even date
herewith.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase
Money Lien and which, when aggregated with the principal amount of all
other such Indebtedness and Capitalized Lease Obligations of Borrower at
the time outstanding, does not exceed $1,500,000. For
STL-506421.07
- 15 -
<PAGE>
the purposes of this definition, the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a
Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted Consolidated and consolidating (a)
balance sheets, (b) profit and loss statements, (c) cash flow statements,
and (d) capitalization statements, all prepared on a consistent basis with
Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the
purchase price of any fixed assets, (ii) any Indebtedness (other than the
Obligations) incurred at the time of or within 10 days prior to or after
the acquisition of any fixed assets for the purpose of financing all or any
part of the purchase price thereof, and (iii) any renewals, extensions or
refinancings thereof, but not any increases in the principal amounts
thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined
solely to the fixed assets the purchase price of which was financed through
the incurrence of the Purchase Money Indebtedness secured by such Lien.
RSI - Recognition Systems, Inc. , a California corporation.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Rentals - as defined in subsection 8.2.13 of the Agreement.
STL-506421.07
-16-
<PAGE>
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or
other obligation or Security, or by loan, advance or capital contribution,
or otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of Borrower to the
extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of business;
(iii) Current Assets arising from the sale of goods and services
in the ordinary course of business of Borrower and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one
year from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within one
year from the date of acquisition issued by a bank or trust company
organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least
$100,000,000;
(vi) investments in commercial paper given the highest rating by
a national credit rating agency and maturing not more than 270 days
from the date of creation thereof; and
(vii) deposits with Fleming in an amount not to exceed
$5,000,000, to be held by Fleming and applied in payment for shares of
common capital stock of Harrow Industries, par value $0.01 per share,
and $.50 junior preferred stock, par value $0.01 per share, all in
accordance with the terms previously disclosed to Lender, provided
that the permitted deposit of $5,000,000 shall be reduced by any
amounts applied in payment for shares of the common capital stock or
the junior preferred stock referred to in this clause (vii).
STL-506421.07
- 17 -
<PAGE>
Revolving Credit Loan - a Loan made by Lender as provided in Section
1.1 of the Agreement.
SCC - Shawmut Capital Corporation, a Connecticut corporation.
Security - shall have the same meaning as in Section 2(l) of the
Securities Act of 1933, as amended.
Security Documents - the Guaranty Agreement, the Mortgage, the Patent
Assignment, the Trademark Assignment, the Copyright Assignment and all
other instruments and agreements now or at any time hereafter securing the
whole or any part of the Obligations.
Senior Debentures - The debentures of Harrow Industries issued
pursuant to an Indenture dated as of April 15, 1987, with United States
Trust Company of New York, as trustee.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such
Person's Indebtedness (including contingent debts), (ii) is able to pay all
of its Indebtedness as such Indebtedness matures and (iii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
Statutory Reserves - a fraction (expressed as a decimal) the numerator
of which is the number one, and the denominator of which is the number one
minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency or supplemental reserves),
expressed as a decimal, established by the Board of Governors of the
Federal Reserve System and any other banking authority to which Bank or any
Lender is subject for Eurocurrency Liabilities (as defined in Regulation D
of the Board of Governors of the Federal Reserve System or any successor
thereto). Such reserve percentages shall include, without limitation, those
imposed under such Regulation D. LIBOR Revolving Credit Portions or LIBOR
Term Portions shall be deemed to constitute Eurocurrency Liabilities and as
such shall be deemed to be subject to such reserve requirements without
benefit of or credit for proration, exceptions or offsets which may be
available from time to time to Bank or any Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
Subordinated Debt - Indebtedness of Borrower that is subordinated to
the Obligations in a manner satisfactory to
STL-506421.07
- 18 -
<PAGE>
Lender. Subordinated Debt shall include, but not be limited to, the
Intercompany Note.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Tax - in relation to any LIBOR Revolving Credit Portion or LIBOR Term
Portion and the applicable LIBOR Rate, any tax, levy, impost, duty,
deduction, withholding or charges of whatever nature required by any Legal
Requirement (i) to be paid by Lender and/or (ii) to be withheld or deducted
from any payment otherwise required hereby to be made by Borrower to Lender
provided, that the term "Tax" shall not include any taxes imposed upon the
net income of Lender by the United States of America, United Kingdom or any
political subdivision thereof.
Term Loan - the Loan described in subsection 1.2.1 of the Agreement.
Term Note - the Secured Promissory Note to be executed by Borrower on
or about the Closing Date in favor of Lender to evidence the Term Loan,
which shall be in the form of Exhibit A-1 to the Agreement.
Total Credit Facility - $45,000,000.
Total Liabilities - at any date means all amounts properly classified
as liabilities on a balance sheet at such date in accordance with GAAP,
plus all reserves for contingencies and all other potential liabilities for
which no reserves have previously been established on such balance sheet,
to the extent such amounts are not already classified as liabilities in
accordance with GAAP.
Trademark Assignment - the Trademark Collateral Assignment executed by
Borrower and dated as of April 5, 1991, by which Borrower assigned to
Barclays and its assigns as security for the obligations noted therein all
of Borrower's right, title and interest in and to certain of its
trademarks.
Trademark Assignment Amendment - the amendment to the Trademark
Assignment to be executed by Borrower in favor of Lender and dated of even
date herewith.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of
STL-506421.07
- 19 -
<PAGE>
the corporate directors (or Persons performing similar functions).
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a
whole and not to any particular section, paragraph or subdivision. Any
pronoun used shall be deemed to cover all genders. The section titles,
table of contents and list of exhibits appear as a matter of convenience
only and shall not affect the interpretation of the Agreement. All
references to statutes and related regulations shall include any amendments
of same and any successor statutes and regulations. All references to any
of the Loan Documents shall include any and all modifications thereto and
any and all extensions or renewals thereof.
STL-506421.07
-20-
<PAGE>
EXHIBIT 10.8
HARROW INDUSTRIES, INC.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
May 1, 1996
Mr. James S. Dahlke
S23 W23187 East Broadway
Waukesha, WI 53186
Dear Jim:
This letter confirms our offer to employ you on the following terms and
conditions.
We agree to employ you and you have agreed to accept employment as
President and Chief Operating Officer of Harrow Industries, Inc. (the "Company")
and its subsidiary, Harrow Products, Inc. ("Harrow Products"), commencing on or
about June 17, 1996 (the "Commencement Date").
You will be paid a base salary at the rate of $25O,000 per year,
payable in accordance with normal payroll practices, less withholding taxes.
In addition to your salary, you will be eligible to receive a
performance bonus at the end of the fiscal year of up to 50%. of your base
salary, less withholding taxes, in accordance with performance goals to be
agreed upon, provided that for the fiscal year ending November 30, 1996, you
will be paid a bonus amount at the rate of 50% of your base salary prorated for
the portion of the fiscal year that you are actually employed with the Company
and Harrow Products.
The Company will issue you options ("Options") to buy ordinary shares
("Shares") of common stock of Harrow Industries, Inc. (the "Stock"), at an
exercise price of $21.70 per Share, as follows: you will be granted an aggregate
of 20,000 options to purchase an aggregate of 20,000 Shares, 4,000 of which
Options will vest and become immediately exercisable upon your signing
<PAGE>
of this letter, and 4,000 of which Options will vest and become immediately
exercisable on each of the first, second, third and fourth anniversaries of the
Commencement Date, provided that you are still employed with the Company and
Harrow Products at such times. Notwithstanding the foregoing, if your employment
relationship with the Company and Harrow Products ceases for any reason prior to
the fifth anniversary of the Commencement Date, (i) any and all Options then
outstanding, whether vested or not vested, shall immediately cease to be
exercisable and shall be of no further force or effect, and (ii) any and all
Stock that you have acquired as a result of exercise of Options pursuant to this
paragraph must be sold back to the Company (or a third party designated by the
Company) as soon as practicable following such time as your employment with the
Company and Harrow Products ceases, at a price per share as determined by Robert
Fleming & Co. Limited (or such other financial advisor as may be designated by
the Board of Directors of the Company), as of the date your employment
relationship with the Company and Harrow Products ceases. If the Company shall
effect an initial public offering of its Stock before the fifth anniversary of
the Commencement Date, the "sellback" provision in the preceding sentence shall
be of no force and effect from and after the closing date of such initial public
offering. You further agree to execute such customary agreements and instruments
as the Company deems reasonably necessary to effectuate the arrangements set
forth in this paragraph.
You will also be provided with an allowance for a car, a club
membership, and fringe benefits such as health insurance and retirement benefits
in accordance with the applicable plans and policies as amended from time to
time.
You acknowledge and agree that your employment with the Company and
Harrow Products is "at will" and may be terminated by you or the Company at any
time and for any reason, with or without cause and with or without prior notice.
Finally, you represent that you are not subject to any employment
contract, express or implied, or any other restriction that would prevent you
from becoming employed with the Company and Harrow Products on the terms and
conditions set forth above.
2
<PAGE>
The terms of this letter are personal to you and may not be assigned by
you. Any disagreements as to the meaning of this letter shall be resolved by the
application of the laws of the State of Delaware, without regard to its choice
of law rules.
If you agree that this letter fully and accurately reflects our
understanding, please sign the enclosed copy and return it to the undersigned.
Very truly yours,
/s/Dudley C. Mecum
Dudley C. Mecum
Chairman
AGREED AND ACCEPTED:
James S. Dahlke
(Signature)
5-7-96
(Date)
3
<PAGE>
EXHIBIT 10.9
HARROW Products, Inc.
June 5, 1996
Mr. Donald D. Fenstermacher
2627 E. Beltline, SE
Grand Rapids, MI 49546
Dear Don:
This will confirm our agreement with you effective 6/27/96 as follows:
1. Employment
1.1. Employment & Duties. We agree to employ you as Vice President of
Harrow Products, Inc. ("Company") and you will act in such capacity and devote
your full business time, skill, attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment, you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.
2. Employment Terms
2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral, and professional standards.
2.2. Conflicts of Interest. It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written consent of the Executive Committee of the Board of Directors of Harrow
Industries, Inc., knowingly acquire any financial interest in, directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise which undertakes any business in substantial competition with the
businesses of the Company or sells to or buys from or otherwise transacts
business with the Company, provided, however, that you may acquire and own not
more than one percent (1%) of the outstanding capital stock of any public
corporation which sells to or buys from or otherwise transacts business with the
Company.
2.3 Confidentiality. You specifically acknowledge and agree that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,
HARROW company
2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 616/942-1440,
Fax 616/942-2170
<PAGE>
inventions, forms, procedures, copyrightable subject matter, etc. are the
exclusive property of the Company and may not be disclosed by you to any person
outside of Harrow, nor will you make any unauthorized use of same during the
period of your employment or thereafter.
3. Compensation & Benefits
3.1 Cash Compensation. The Company agrees to pay for all your services to
or on behalf of the Company in each full fiscal year, or a portion thereof
(prorated as to the portion) payable in approximately equal installments in
accordance with the customary payroll practices of the Company (your "salary").
This salary shall be subject to annual review and adjustment by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries, Inc. in
accordance with standard executive compensation procedures of the Company in
effect from time to time. As of 12/l/95, your annual salary will be $125,600.
You shall be entitled to participate in the Executive Management Incentive Plan
or such other program for which executives are or shall become eligible, and
receive such bonus compensation as may become due you pursuant to the terms of
that Plan.
3.2 Benefit Plans/Vacation. The payments provided above are in addition to
any benefits to which executives may be, or may become, entitled under any
welfare benefit plan, retirement plan, or fringe benefit program of Harrow,
including, without limitation, pension, 401(k), vacation, company vehicle,
medical/dental/executive medical coverage, life insurance, long term care, or
disability benefits. You shall be eligible to receive during the period of your
employment with the Company, all such benefits for which other executives are
eligible under such plans or programs to the extent permissible under the terms
and provisions of the plans.
3.3 Expenses. You will be entitled to reimbursement for reasonable
out-of-pocket expenses incurred by you in the performance of your duties under
this Agreement subject to presentment of appropriate vouchers or receipts, per
Corporate Procedure # 352.2.
4. Termination
4.1 General. Your employment with the Company as set forth in this
Agreement may be terminated any time, subject to the provisions set forth in
Section 4.2 and 4.3:
4.2 Termination for Cause. In addition to any such remedies which Harrow
may have at law or in equity, the Company may immediately terminate your
employment under this Agreement by giving you written notice of such termination
upon or at any time following the occurrence of any of the following events.
Each such event shall constitute a termination "for cause:"
A. criminal conduct on your part which results in conviction of a
felony; or
B. conduct on your part involving your willful malfeasance or
gross negligence or
2
<PAGE>
failure to act involving material non-feasance or gross negligence on
your part, which conduct or failure to act has a material adverse
effect on the business of the Company; or
C. your misappropriation of funds or property of the Company; or
D. the material breach by you of any of your covenants,
agreements or other obligations contained in this Agreement.
Upon the occurrence of termination of your employment "for cause" under
this Section 4.2, the Company shall pay to you an amount equal to your accrued
salary through the effective date of termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of termination, and any approved expense reimbursement amounts accrued
through the effective date of termination. Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.
4.3 Termination without Cause. The Company may terminate your employment
under this Agreement at any time without cause, provided sixty (60) day's
written notice of such intent to terminate is provided to you by the Company.
For purposes of illustration, termination "without cause" shall be defined as,
but not limited to, the following events:
A. Bona fide decision by the Company to terminate its business
and liquidate its assets; or
B. Change in control of Harrow Industries, Inc, such change in
control being defined as acquisition by a bidder of 51% of the voting
shares of the Company or a sale of substantially all of the company's
assets; or
C. Material adverse alteration in the nature or status of your
responsibilities and duties as Vice President of the Company. (Should
such material alteration be made at your request, the obligations of
the Company under this Section 4.3 are not triggered); or
D. Reorganization or elimination of the area of the business in
which you work; or
E. Relocation of the Company's principal executive offices to a
location more than 50 miles from its current location in Grand Rapids,
Michigan, regardless of whether you are offered an equivalent position
at the new location. While the Company has no obligation to offer you
an equivalent position, should you be offered the opportunity to
relocate and you decline, such declination shall be
3
<PAGE>
be regarded as an event of termination "without cause" and the
obligations of the Company under this Section 4.3 are triggered.
Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period, the Company
shall provide to you the following: severance pay equal to 18 months salary at
the rate in effect at commencement of such severance payments, an amount equal
to your entitlement under the Executive Management Incentive Plan or its
equivalent (calculation to be made based on the results of the Company through
the month ending with your departure from active responsibilities and payment
accordingly pro-rated if such period is less than a full year), benefit
continuation or conversion at company expense for the 18 month severance period,
accrued vacation through the date of termination, outplacement counseling
provided at company expense (amount not to exceed 15% of annual salary at
termination), use of your company vehicle during the 18 month severance period,
and the option to purchase said vehicle at the end of the severance period at
book value. No further Vesting Credit or Service Credit under the Retirement
Plan for the Employees of Harrow Products, Inc. shall accrue to your benefit
following your departure from active responsibilities.
5. Miscellaneous
5.1 Term of Agreement. The initial term of this Agreement shall be from
June 27, 1996 through November 30, 1997. The Agreement shall subsequently
terminate unless the Company notifies you in writing prior to the expiration of
the initial or a subsequent term of its intent to renew the Agreement for
another one year term (all terms subsequent to the initial term shall be of one
year duration). Authority to take action to renew is vested solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreement any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.
5.2 Assignment. Neither party may transfer, assign, encumber, or otherwise
dispose of, voluntarily or involuntarily, any of your rights to receive any of
the payments provided herein, which rights are expressly declared nonassignable
and nontransferable. The provisions of this Agreement are binding upon and inure
to the benefit of the parties hereto and their respective personal
representatives or successors.
5.3 Amendments. No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.
5.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of any other term or provision of this
Agreement.
5.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
4
<PAGE>
5.6 Arbitration. Any and all differences or disputes that may arise during
or following your employment with the Company shall be brought and resolved
utilizing a final and binding, impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes. If arbitration is sought, the parties specifically
empower the arbitrator to apply the substantive applicable law and agree he/she
shall have exclusive authority to resolve all differences, provide all remedies
and due process protections as afforded under the applicable law.
5.7 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all prior or contemporaneous agreements, either oral or in writing, between you
and the Company with respect to the subject matter hereof and contains all of
the covenants and agreements between you and the Company with respect to your
employment by the Company, or your right to receive severance benefits.
5.8 Notices. For purposes of this Agreement notice and all the
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered or mailed by US registered
mail, return receipt requested, postage prepaid, addressed to the respective
addressees at their addresses as set forth in the Agreement.
5.9 Severabilitiy. Should any provision of this Agreement be held to be
invalid, such invalidity shall not affect the enforceability of any other
provision.
Please confirm your understanding and acceptance of the foregoing by
signing and returning to the Company a signed copy of this letter.
HARROW PRODUCTS, INC.
By /s/Dudley C. Mecum
Dudley C. Mecum
Its Chairman and CEO
Agreed:
/s/ Donald D. Fensterinacher
Donald D. Fensterinacher, VP
5
<PAGE>
EXHIBIT 10.10
HARROW Products, Inc.
June 5, 1996
Mr. John S. Hogan
2627 E. Beltline, SE
Grand Rapids, MI 49546
Dear John:
This will confirm our agreement with you effective 6/27/96 as follows:
1. Employment
1.1. Employment & Duties. We agree to employ you as Vice President of
Harrow Products, Inc. ("Company") and you will act in such capacity and devote
your full business time, skill, attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment, you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.
2. Employment Terms
2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral and professional standards.
2.2. Conflicts of Interest. It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written consent of the Executive Committee of the Board of Directors of Harrow
Industries, Inc., knowingly acquire any financial interest in, directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise which undertakes any business in substantial competition with the
businesses of the Company or sells to or buys from or otherwise transacts
business with the Company, provided, however, that you may acquire and own not
more than one percent (1 %) of the outstanding capital stock of any public
corporation which sells to or buys from or otherwise conducts business with the
Company.
2.3 Confidentiality. You specifically acknowledge and agree that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,
1
Harrow company
2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 6l6/942-1440,
Fax 616/942-2170
<PAGE>
inventions, forms, procedures, copyrightable subject matter, etc. are the
exclusive property of the Company and may not be disclosed by you to any person
outside of Harrow, nor will you make any unauthorized use of same during the
period of your employment or thereafter.
3. Compensation & Benefits
3.1 Cash Compensation. The Company agrees to pay for all your services to
or on behalf of the Company in each full fiscal year, or a portion thereof
(prorated as to the portion) payable in approximately equal installments in
accordance with the customary payroll practices of the Company (your "salary").
This salary shall be subject to annual review and adjustment by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries, Inc. in
accordance with standard executive compensation procedures of the Company in
effect from time to time. As of 12/l/95, your annual salary will be $144,500.
You shall be entitled to participate in the Executive Management Incentive Plan
or such other program for which executives are or shall become eligible, and
receive such bonus compensation as may become due you pursuant to the terms of
that Plan.
3.2 Benefit Plans/Vacation. The payments provided above are in addition to
any benefits to which executives may be, or may become, entitled under any
welfare benefit plan, retirement plan, or fringe benefit program of Harrow,
including, without limitation, pension, 401(k), vacation, company vehicle,
medical/dental/executive medical coverage, life insurance, long term care, or
disability benefits. You shall be eligible to receive during the period of your
employment with the Company, all such benefits for which other executives are
eligible under such plans or programs to the extent permissible under the terms
and provisions of the plans.
3.3 Expenses. You will be entitled to reimbursement for reasonable
out-of-pocket expenses incurred by you in the performance of your duties under
this Agreement subject to presentment of appropriate vouchers or receipts, per
Corporate Procedure # 352.2.
4. Termination
4.1 General. Your employment with the Company as set forth in this
Agreement may be terminated any time, subject to the provisions set forth in
Section 4.2 and 4.3:
4.2 Termination for Cause. In addition to any such remedies which Harrow
may have at law or in equity, the Company may immediately terminate your
employment under this Agreement by giving you written notice of such termination
upon or at any time following the occurrence of any of the following events.
Each such event shall constitute a termination "for cause:"
A. criminal conduct on your part which results in conviction of a
felony; or
B. conduct on your part involving your willful malfeasance or
gross negligence or
2
<PAGE>
failure to act involving material non-feasance or gross negligence on
your part which conduct or failure to act has a material adverse effect
on the business of the Company; or
C. your misappropriation of funds or property of the Company; or
D. the material breach by you of any of your covenants,
agreements or other obligations contained in this Agreement.
Upon the occurrence of termination of your employment "for cause, under
this Section 4.2, the Company shall pay to you an amount equal to your accrued
salary through the effective date of termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of termination, and any approved expense reimbursement amounts accrued
through the effective date of termination. Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.
4.3 Termination without Cause. The Company may terminate your employment
under this Agreement at any time without cause, provided sixty (60) day's
written notice of such intent to terminate is provided to you by the Company.
For purposes of illustration, termination "without cause" shall be defined as,
but not limited to, the following events:
A. Bona fide decision by the Company to terminate its business
and liquidate its assets; or
B. Change in control of Harrow Industries, Inc, such change in
control being defined as acquisition by a bidder of 51% of the voting
shares of the Company or a sale of substantially all of the company's
assets; or
C. Material adverse alteration in the nature or status of your
responsibilities and duties as Vice President of the Company. (Should
such material alteration be made at your reques4 the obligations of
the Company under this Section 4.3 are not triggered); or
D. Reorganization or elimination of the area of the business in
which you work; or
E. Relocation of the Company's principal executive offices to a
location more than 50 miles from its current location in Grand Rapids,
Michigan, regardless of whether you are offered an equivalent position
at the new location. While the Company has no obligation to offer you
an equivalent position, should you be offered the opportunity to
relocate and you decline, such declination shall be
3
<PAGE>
be regarded as an event of termination "without cause" and the
obligations of the Company under this Section 4.3 are triggered.
Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period, the Company
shall provide to you the following: severance pay equal to 18 months salary at
the rate in effect at commencement of such severance payments, an amount equal
to your entitlement under the Executive Management Incentive Plan or its
equivalent (calculation to be made based on the results of the Company through
the month ending with your departure from active responsibilities and payment
accordingly pro-rated if such period is less than a full year), benefit
continuation or conversion at company expense for the 18 month severance period,
accrued vacation through the date of termination, outplacement counseling
provided at company expense (amount not to exceed 15% of annual salary at
termination), use of your company vehicle during the 18 month severance period,
and the option to purchase said vehicle at the end of the severance period at
book value. No further Vesting Credit or Service Credit under the Retirement
Plan for the Employees of Harrow Products, Inc. shall accrue to your benefit
following your departure from active responsibilities.
5. Miscellaneous
5.1 Term of Agreement. The initial term of this Agreement shall be from
June 27, 1996 through November 30, 1997. The Agreement shall subsequently
terminate unless the Company notifies you in writing prior to the expiration of
the initial or a subsequent term of its intent to renew the Agreement for
another one year term (all terms subsequent to the initial term shall be of one
year duration). Authority to take action to renew is vested solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreemen4 any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.
5.2 Neither party may transfer, assign, encumber, or otherwise dispose of,
voluntarily or involuntarily, any of your rights to receive any of the payments
provided herein, which rights are expressly declared nonassignable and
nontransferable. The provisions of this Agreement are binding upon and inure to
the benefit of the parties hereto and their respective personal representatives
or successors.
5.3 Amendments. No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.
5.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of an other term or provision of this
Agreement.
5.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
4
<PAGE>
5.6 Arbitration. Any and all differences or disputes that may arise during
or following your employment with the Company shall be brought and resolved
utilizing a final and binding, impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes. If arbitration is sought, the parties specifically
empower the arbitrator to apply the substantive applicable law and agree he/she
shall have exclusive authority to resolve all differences, provide all remedies
and due process protections as afforded under the applicable law.
5.7 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all prior or contemporaneous agreements, either oral or in writing, between you
and the Company with respect to the subject matter hereof and contains all of
the covenants and agreements between you and the Company with respect to your
employment by the Company, or your right to receive severance benefits. You
specifically acknowledge the purported employment agreement dated August 3, 1995
and entered into by you and the former Chairman of the Board of Harrow
Industries, Inc., Philip A. Uzielli, has and had no force and effect.
5.8 Notices. For purposes of this Agreement notice and all the
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered or mailed by US registered
mail, return receipt requested, postage prepaid, addressed to the respective
addressees at their addresses as set forth in the Agreement.
5.9 Severability. Should any provision of this Agreement be held to be
invalid, such invalidity shall not affect the enforceability of any other
provision.
Please confirm your understanding and acceptance of the foregoing by
signing and returning to the Company a signed copy of this letter.
HARROW PRODUCTS, INC.
By /s/Dudley C. Mecum
Dudley C. Mecum
Its Chairman and CEO
Agreed:
/s/John S. Hogan
John S. Hogan, Vice President
5
<PAGE>
EXHIBIT 10.11
HARROW Products, Inc.
June 5, 1996
Mr. Gary L Humphreys
2627 E. Beltline, SE
Grand Rapids, MI 49546
Dear Gary:
This will confirm our agreement with you effective 6/27/96 as follows:
1. Employment
1.1. Employment & Duties. We agree to employ you as Vice President of
Harrow Products, Inc. ("Company") and you will act in such capacity and devote
your full business time, skill, attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.
2. Employment Terms
2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral, and professional standards.
2.2. Conflicts of Interest. It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written consent of the Executive Committee of the Board of Directors of Harrow
Industries, Inc., knowingly acquire any financial interest in, directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise which undertakes any business in substantial competition with the
businesses of the Company or sells to or buys from or otherwise transacts
business with the Company, provided, however, that you may acquire and own not
more than one percent (1%) of the outstanding capital stock of any public
corporation which sells to or buys from or otherwise transacts business with the
Company.
2.3 Confidentiality. You specifically acknowledge and agree that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,
1
HARROW company
2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 6l6/942-1440,
Fax 616/942-2170
<PAGE>
inventions, forms, procedures, copyrightable subject matter, etc. are the
exclusive property of the Company and may not be disclosed by you to any person
outside of Harrow, nor will you make any unauthorized use of same during the
period of your employment or thereafter.
3. Compensation & Benefits
3.1 Cash Compensation. The Company agrees to pay for all your services to
or on behalf of the Company in each full fiscal year, or a portion thereof
(prorated as to the portion) payable in approximately equal installments in
accordance with the customary payroll practices of the Company (your "salary").
This salary shall be subject to annual review and adjustment by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries, Inc. in
accordance with standard executive compensation procedures of the Company in
effect from time to time. As of 12/l/95, your annual salary will be $127,300.
You shall be entitled to participate in the Executive Management Incentive Plan
or such other program for which executives are or shall become eligible, and
receive such bonus compensation as may become due you pursuant to the terms of
that Plan.
3.2 Benefit Plans/Vacation. The payments provided above are in addition to
any benefits to which executives may be, or may become, entitled under any
welfare benefit plan, retirement plan, or fringe benefit program of Harrow,
including, without limitation, pension, 401(k), vacation, company vehicle,
medical/dental/executive medical coverage, life insurance, long term care, or
disability benefits. You shall be eligible to receive during the period of your
employment with the Company, all such benefits for which other executives are
eligible under such plans or programs to the extent permissible under the terms
and provisions of the plans.
3.3 Expenses. You will be entitled to reimbursement for reasonable
out-of-pocket expenses incurred by you in the performance of your duties under
this Agreement subject to presentment of appropriate vouchers or receipts, per
Corporate Procedure # 352.2.
4. Termination
4.1 General. Your employment with the Company as set forth in this
Agreement may be terminated any time, subject to the provisions set forth in
Section 4.2 and 4.3:
4.2 Termination for Cause. In addition to any such remedies which Harrow
may have at law or in equity, the Company may immediately terminate your
employment under this Agreement by giving you written notice of such termination
upon or at any time following the occurrence of any of the following events.
Each such event shall constitute a termination "for cause:"
A. criminal conduct on your part which results in conviction of a
felony; or
B. conduct on your part involving your willful malfeasance or
gross negligence or
2
<PAGE>
failure to act involving material non-feasance or gross negligence on
your part, which conduct or failure to act has a material adverse
effect on the business of the Company; or
C. your misappropriation of funds or property of the Company; or
D. the material breach by you of any of your covenants,
agreements or other obligations contained in this Agreement.
Upon the occurrence of termination of your employment "for cause" under
this Section 4.2, the Company shall pay to you an amount equal to your accrued
salary through the effective date of termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of termination, and any approved expense reimbursement amounts accrued
through the effective date of termination. Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.
4.3 Termination-Without Cause. The Company may terminate your employment
under this Agreement at any time without cause, provided sixty (60) day's
written notice of such intent to terminate is provided to you by the Company.
For purposes of illustration, termination "without cause" shall be defined as,
but not limited to, the following events:
A. Bona fide decision by the Company to terminate its business
and liquidate its assets; or
B. Change in control of Harrow Industries, Inc, such change in
control being defined as acquisition by a bidder of 51% of the voting
shares of the Company or a sale of substantially all of the company's
assets; or
C. Material adverse alteration in the nature or status of your
responsibilities and duties as Vice President of the Company. (Should
such material alteration be made at your request the obligations of
the Company under this Section 4.3 are not triggered); or
D. Reorganization or elimination of the area of the business in
which you work; or
E. Relocation of the Company's principal executive offices to a
location more than 50 miles from its current location in Grand Rapids,
Michigan, regardless of whether you are offered an equivalent position
at the new location. While the Company has no obligation to offer you
an equivalent position, should you be offered the opportunity to
relocate and you decline, such declination shall be
3
<PAGE>
be regarded as an event of termination "without cause" and the
obligations of the Company under this Section 4.3 are triggered.
Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period, the Company
shall provide to you the following: severance pay equal to 18 months salary at
the rate in effect at commencement of such severance payments, an amount equal
to your entitlement under the Executive Management Incentive Plan or its
equivalent (calculation to be made based on the results of the Company through
the month ending with your departure from active responsibilities and payment
accordingly pro-rated if such period is less than a full year), benefit
continuation or conversion at company expense for the 18 month severance period,
accrued vacation through the date of termination, outplacement counseling
provided at company expense (amount not to exceed 15% of annual salary at
termination), use of your company vehicle during the 18 month severance period,
and the option to purchase said vehicle at the end of the severance period at
book value. No further Vesting Credit or Service Credit under the Retirement
Plan for the Employees of Harrow Products, Inc. shall accrue to your benefit
following your departure from active responsibilities.
5. Miscellaneous
5.1 Term of Agreement. The initial term of this Agreement shall be from
June 27, 1996 through November 30, 1997. The Agreement shall subsequently
terminate unless the Company notifies you in writing prior to the expiration of
the initial or a subsequent term of its intent to renew the Agreement for
another one year term (all terms subsequent to the initial term shall be of one
year duration). Authority to take action to renew is vested solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreement any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.
5.2 Assignment. Neither party may transfer, assign, encumber, or otherwise
dispose of, voluntarily or involuntarily, any of your rights to receive any of
the payments provided herein, which rights are expressly declared nonassignable
and nontransferable. The provisions of this Agreement are binding upon and inure
to the benefit of the parties hereto and their respective personal
representatives or successors.
5.3 Amendments. No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.
5.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of any other term or provision of this
Agreement.
5.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
4
<PAGE>
5.6 Arbitration. Any and all differences or disputes that may arise during
or following your employment with the Company shall be brought and resolved
utilizing a final and binding, impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes. If arbitration is sought the parties specifically
empower the arbitrator to apply the substantive applicable law and agree he/she
shall have exclusive authority to resolve all differences, provide all remedies
and due process protections as afforded under the applicable law.
5.7 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all prior or contemporaneous agreements, either oral or in writing, between you
and the Company with respect to the subject matter hereof and contains all of
the covenants and agreements between you and the Company with respect to your
employment by the Company, or your right to receive severance benefits. You
specifically acknowledge the purported employment agreement dated August 3, 1995
and entered into by you and the former Chairman of the Board of Harrow
Industries, Inc., Philip A- Uzielli, has and had no force and effect.
5.8 Notices. For purposes of this Agreement notice and all the
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered or mailed by US registered
mail, return receipt requested, postage prepaid, addressed to the respective
addressees at their addresses as set forth in the Agreement.
5.9 Severability. Should any provision of this Agreement be held to be
invalid, such invalidity shall not affect the enforceability of any other
provision.
Please confirm your understanding and acceptance of the foregoing by
signing and returning to the Company a signed copy of this letter.
HARROW PRODUCTS, INC.
By /s/ Dudley C. Mecum
Dudley C. Mecum
Its Chairman and CEO
Agreed:
/s/ Gary L. Humpreys
Gary L. Humpreys, VP
5
<PAGE>
EXHIBIT 10.12
HARROW Products, Inc.
June 5, 1996
Ms. Betsy F. Raymond
2627 E. Beltline, SE
Grand Rapids, MI 49546
Dear Betsy:
This will confirm our agreement with you effective 6/27/96 as follows:
1. Employment
1.1. Employment & Duties. We agree to employ you as Vice President of
Harrow Products, Inc. ("Company") and you will act in such capacity and devote
your full business time, skill, attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment, you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.
2. Employment Terms
2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral, and professional standards.
2.2. Conflicts of Interest. It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written consent of the Executive Committee of the Board of Directors of Harrow
Industries, Inc., knowingly acquire any financial interest in, directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise which undertakes any business in substantial competition with the
businesses of the Company or sells to or buys from or otherwise transacts
business with the Company, provided, however, that you may acquire and own not
more than one percent (1%) of the outstanding capital stock of any public
corporation which sells to or buys from or otherwise transacts business with the
Company.
2.3 Confidentiality. You specifically acknowledge and agree that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,
1
HARROW company
2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 616/942-1440,
Fax 616/942-2170
<PAGE>
inventions, forms, procedures, copyrightable subject matter, etc. are the
exclusive property of the Company and may not be disclosed by you to any person
outside of Harrow, nor will you make any unauthorized use of same during the
period of your employment or thereafter.
3. Compensation & Benefits
3.1 Cash Compensation. The Company agrees to pay for all your services to
or on behalf of the Company in each full fiscal year, or a portion thereof
(prorated as to the portion) payable in approximately equal installments in
accordance with the customary payroll practices of the Company (your "salary").
This salary shall be subject to annual review and adjustment by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries, Inc. in
accordance with standard executive compensation procedures of the Company in
effect from time to time. As of 12/l/95, your annual salary will be $114,100.
You shall be entitled to participate in the Executive Management Incentive Plan
or such other program for which executives are or shall become eligible, and
receive such bonus compensation as may become due you pursuant to the terms of
that Plan.
3.2 Benefit Plans/Vacation. The payments provided above are in addition to
any benefits to which executives may be, or may become, entitled under any
welfare benefit plan, retirement plan, or fringe benefit program of Harrow,
including, without limitation, pension, 401(k), vacation, company vehicle,
medical/dental/executive medical coverage, life insurance, long term care, or
disability benefits. You shall be eligible to receive during the period of your
employment with the Company, all such benefits for which other executives are
eligible under such plans or programs to the extent permissible under the terms
and provisions of the plans.
3.3 Expenses. You will be entitled to reimbursement for reasonable
out-of-pocket expenses incurred by you in the performance of your duties under
this Agreement, subject to presentment of appropriate vouchers or receipts, per
Corporate Procedure # 352.2.
4. Termination
4.1 General. Your employment with the Company as set forth in this
Agreement may be terminated any time, subject to the provisions set forth in
Section 4.2 and 4.3:
4.2 Termination for Cause. In addition to any such remedies which Harrow
may have at law or in equity, the Company may immediately terminate your
employment under this Agreement by giving you written notice of such termination
upon or at any time following the occurrence of any of the following events.
Each such event shall constitute a termination "for cause:"
A. criminal conduct on your part which results in conviction of a
felony; or
B. conduct on your part involving your willful malfeasance or
gross negligence or
2
<PAGE>
failure to act involving material non-feasance or gross negligence on
your part, which conduct or failure to act has a material adverse
effect on the business of the Company; or
C. your misappropriation of funds or property of the Company; or
D. the material breach by you of any of your covenants,
agreements or other obligations contained in this Agreement.
Upon the occurrence of termination of your employment "for cause" under
this Section 4.2, the Company shall pay to you an amount equal to your accrued
salary through the effective date of termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of termination, and any approved expense reimbursement amounts accrued
through the effective date of termination. Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.
4.3 Termination without Cause. The Company may terminate your employment
under this Agreement at any time without cause, provided sixty (60) day's
written notice of such intent to terminate is provided to you by the Company.
For purposes of illustration, termination "without cause" shall be defined as,
but not limited to, the following events:
A. Bona fide decision by the Company to terminate its business
and liquidate its assets; or
B. Change in control of Harrow Industries, Inc, such change in
control being defined as acquisition by a bidder of 5 1 % of the
voting shares of the Company or a sale of substantially all of the
company's assets; or
C. Material adverse alteration in the nature or status of your
responsibilities and duties as Vice President of the Company. (Should
such material alteration be made at your request, the obligations of
the Company under this Section 4.3 are not triggered); or
D. Reorganization or elimination of the area of the business in
which you work; or
E. Relocation of the Company's principal executive offices to a
location more than 50 miles from its current location in Grand Rapids,
Michigan, regardless of whether you are offered an equivalent position
at the new location. While the Company has no obligation to offer you
an equivalent position, should you be offered the opportunity to
relocate and you decline, such declination shall be
3
<PAGE>
be regarded as an event of termination "without cause" and the
obligations of the Company under this Section 4.3 are triggered.
Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period, the Company
shall provide to you the following: severance pay equal to 18 months salary at
the rate in effect at commencement of such severance payments, an amount equal
to your entitlement under the Executive Management Incentive Plan or its
equivalent (calculation to be made based on the results of the Company through
the month ending with your departure from active responsibilities and payment
accordingly pro-rated if such period is less than a full year), benefit
continuation or conversion at company expense for the 18 month severance period,
accrued vacation through the date of termination, outplacement counseling
provided at company expense (amount not to exceed 15% of annual salary at
termination), use of your company vehicle during the 18 month severance period,
and the option to purchase said vehicle at the end of the severance period at
book value. No further Vesting Credit or Service Credit under the Retirement
Plan for the Employees of Harrow Products, Inc. shall accrue to your benefit
following your departure from active responsibilities.
5. Miscellaneous
5.1 Term of Agreement. The initial term of this Agreement shall be from
June 27, 1996 through November 30, 1997. The Agreement shall subsequently
terminate unless the Company notifies you in writing prior to the expiration of
the initial or a subsequent term of its intent to renew the Agreement for
another one year term (all terms subsequent to the initial term shall be of one
year duration). Authority to take action to renew is vested solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreement any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.
5.2 Assignment. Neither party may transfer, assign, encumber, or otherwise
dispose of, voluntarily or involuntarily, any of your rights to receive any of
the payments provided herein, which rights are expressly declared nonassignable
and nontransferable. The provisions of this Agreement are binding upon and inure
to the benefit of the parties hereto and their respective personal
representatives or successors.
5.3 Amendments. No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.
5.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of any other term or provision of this
Agreement.
5.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
4
<PAGE>
5.6 Arbitration. Any and all differences or disputes that may arise during
or following your employment with the Company shall be brought and resolved
utilizing a final and binding, impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes. If arbitration is sought, the parties specifically
empower the arbitrator to apply the substantive applicable law and agree he/she
shall have exclusive authority to resolve all differences, provide all remedies
and due process protections as afforded under the applicable law.
5.7 Inclusion of Entire Agreement Herein This Agreement supersedes any and
all prior or contemporaneous agreements, either oral or in writing, between you
and the Company with respect to the subject matter hereof and contains all of
the covenants and agreements between you and the Company with respect to your
employment by the Company, or your right to receive severance benefits. You
specifically acknowledge the purported employment agreement dated August 3, 1995
and entered into by you and the former Chairman of the Board of Harrow
Industries, Inc., Philip A. Uzielli, has and had no force and effect.
5.8 Notices. For purposes of this Agreement, notice and all the
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered or mailed by US registered
mail, return receipt requested, postage prepaid, addressed to the respective
addressees at their addresses as set forth in the Agreement.
5.9 Severability. Should any provision of this Agreement be held to be
invalid, such invalidity shall not affect the enforceability of any other
provision.
Please confirm your understanding and acceptance of the foregoing by
signing and returning to the Company a signed copy of this letter.
HARROW PRODUCTS, INC.
By /s/ Dudley C. Mecum
Dudley C. Mecum
Its Chairman and CEO
Agreed:
/s/ Betsy F. Raymond
Betsy F. Raymond, Vice President
5
<PAGE>
EXHIBIT 10.13
HARROW INDUSTRIES, INC.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
April 23, 1996
Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
England
Gentlemen:
Reference is made to that certain Letter Agreement , dated April 15, 1996,
by and among Larry L. Adams, Sharon C. Adams, James F. Adams, Katherine E. Adams
and Sarah M. Adams, as sellers ("Sellers"), and Robert Fleming & Co. Limited, as
buyer ("Fleming"), relating to the sale by Sellers to Fleming of 66,150 shares
of Common Stock, par value $0.01 per share (the "Common Stock"), of Harrow
Industries, Inc., a Delaware corporation ("Harrow"). The shares of Common Stock
so purchased by Fleming (as the same may be adjusted, split, combined,
re-classified or otherwise changed) are hereinafter referred to as the "Option
Shares".
We have agreed that upon the terms and conditions set forth in this Letter
Agreement, Harrow shall have the option to purchase from Fleming, and Fleming
shall have the option to sell to Harrow, all of the Option Shares at the Option
Price (as defined below). Our agreement is as follows:
1. Option of Harrow to Purchase. Subject to the terms and conditions of
this Letter Agreement, upon the first occurrence of a Call Event (as hereinafter
defined) Harrow shall have the option (the "Call Option") to purchase from
Fleming (and, upon the exercise of such option, Fleming shall sell to Harrow)
all of the Option shares at the Option Price. The Call Option shall be
exercisable for 60 days after the occurrence of a Call Event (the "Option
Exercise Period"). If the Call Option
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 2
is not exercised during the Option Exercise Period, it shall lapse and be of no
further force and effect. In any event, the Call Option shall not be exercisable
later than 5:00pm, New York City time, on December 31, 1997.
2. Option of Fleming to Sell. Subject to the terms and conditions of this
Letter Agreement, upon the first occurrence of a Call Event, Fleming shall have
the option (the "Put Option") to sell to Harrow (and, upon the exercise of such
option, Harrow shall purchase from Fleming) all of the Option Shares at the
Option Price. The Put Option shall be exercisable for the Option Exercise
Period. If the Put Option is not exercised during the Option Exercise Period, it
shall lapse and be of no further force and effect. In any event, the Put Option
shall not be exercisable later than 5:00pm, New York City time, on December 31,
1997.
3. Manner of Exercise of Options. (a) The Call Option and the Put Option
shall be exercisable by giving to the other party, at the address and in the
manner contemplated by Section 10(i) hereof, written notice of the exercise
thereof. Such notice shall specify a date (not earlier than 10 calendar days nor
later than 30 calendar days form the date of such notice) and place for the
closing (the "Closing") of the purchase and sale of the Option Shares pursuant
to the exercise of such option. Upon the mailing of notice duly exercising the
Call Option or the Put Option, as the case may be, such Option shall be deemed
to have been exercised by the party giving such notice, irrespective of the
actual date of Closing. In the event that both the Call Option and the Put
Option are exercised and the respective notices of exercise shall specify
different dates and/or places for the Closing, then the notice bearing the
earlier postmark shall control unless otherwise specifically agreed to by the
parties.
(b) At the Closing, in consideration of the sale, assignment, transfer and
delivery of the Option Shares and against delivery to Harrow of certificates
representing the Option Shares, (i) Harrow shall deliver to Fleming an amount in
cash or by certified or bank
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 3
cashier's check equal to the Option Price and (ii) Fleming shall deliver to
Harrow certificates representing the Option Shares, duly endorsed for transfer
or accompanied by duly executed stock powers.
4. Definitions.
(a) Option Price. As used herein, the term "Option Price" shall mean
an aggregate price of (i) $1,150,000 if the Call Option or the Put Option
is exercised on or prior to December 31, 1996, and (ii) $1,250,000 if the
Call Option or the Put Option is exercised after December 31, 1996 and on
or prior to December 31, 1997.
(b) Call Event. As used herein, a "Call Event" shall be deemed to
occur if the Consolidated Net Worth of Harrow (as reflected in the
consolidated financial statements of Harrow as at the end of any month) as
at the end of any month shall be at least equal to $2,250,000. The date of
the Call Event shall be deemed to be the date of the end of the month for
which the consolidated financial statements referred to in the foregoing
paragraph 4(b)(i) are prepared.
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 4
5. Fleming's Representations and Warranties.
Fleming represents and warrants to Harrow as follows:
(a) Fleming has the full power and authority to execute, deliver and
carry out the terms and provisions of this Agreement and to consummate the
transactions contemplated hereby, and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement;
(b) Fleming is duly organized, validly existing and in good standing
as a corporation under the laws of England;
(c) this Agreement has been duly and validly authorized, executed and
delivered by Fleming and constitutes a valid and binding obligation of
Fleming, enforceable in accordance with its terms, subject to applicable
principles of equity, bankruptcy, reorganization, insolvency, or other laws
affecting the enforcement of creditors' rights generally;
(d) At the time that the Put Option or the Call Option is exercised,
and at the Closing , (i) Fleming shall have taken no action that would have
caused the creation of any liens, claims, options, proxies, voting
agreements, charges or encumbrances of whatever nature and (ii) Fleming
shall not (except as set forth herein) have disposed of any interest in the
Option Shares;
(e) The execution of this Agreement by Fleming does not, and the
performance by Fleming of its obligations hereunder will not, constitute a
violation of, conflict with or result in a default under any contract,
commitment, agreement, understanding, arrangement or restriction of any
kind to which Fleming is a party or by which Fleming is bound or any
judgment, decree or order applicable to Fleming, nor is Fleming required to
obtain the approval of any person or organization to enter into and perform
this Agreement; and
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 5
(f) Neither the execution and delivery of this Agreement nor the
performance by Fleming of its obligations hereunder will violate any
provisions of law applicable to Fleming or require any consent or approval
of, or filing with or notice to any public body or authority under any
provision of law applicable to Fleming.
6. Harrow's Representations and Warranties.
Harrow represents and warrants to Fleming as follows:
(a) Harrow is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. Harrow has the full power and
authority to execute, deliver and carry out the terms and provisions of
this Agreement and consummate the transactions contemplated hereby, and has
taken all necessary action to authorize the execution, delivery and
performance of this Agreement.
(b) This Agreement has been duly and validly authorized, executed and
delivered by Harrow and constitutes a valid and binding agreement of
Harrow, enforceable in accordance with its terms, subject to applicable
principles of equity, bankruptcy, reorganization, insolvency or other laws
affecting the enforcement of creditors' rights generally;
(c) The execution of this Agreement by Harrow does not, and the
performance by Harrow of its obligations hereunder will not, constitute a
violation of, conflict with or result in a default under the contract,
commitment, agreement, understanding, arrangement or restriction of any
kind to which Harrow is a party or by which Harrow is bound or any
judgment, decree or order applicable to Harrow, nor is Harrow required to
obtain the approval of any person or organization to enter into and perform
this Agreement other than those which shall have been obtained at the time
this Agreement is performed; and
(d) neither the execution and delivery of this Agreement, nor the
performance by Harrow of its obligations hereunder will violate any
provision of law
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 6
applicable to Harrow or require any consent or approval of, or filling with
or notice to any public body or authority under any provision of law
applicable to Harrow (except for such periodic reporting requirements as
may be applicable to Harrow under the United States Securities Exchange Act
of 1934 or the rules and regulations promulgated thereunder).
7. Certain Covenants.
(a) In connection with entering into this Agreement, Harrow is
establishing an account in its name to be maintained at Fleming in
accordance with its customary practices concerning the maintenance of cash
accounts of customers, and Harrow is depositing into such account the
amount of $1,071,456. In connection therewith, Harrow agrees that if at any
time Harrow fails to pay any sums due to Fleming Fleming may set off or
transfer any sum standing to the credit of any account Harrow may have with
Fleming, or any other sums that Fleming is holding on Harrow's behalf, in
or towards satisfaction of Harrow's monies, obligations and liabilities to
Fleming under any document or agreement whatsoever. Where such set-off or
transfer requires the conversion of one currency into another, such
conversion shall be calculated at Fleming's then prevailing spot rate of
exchange for purchasing the currency concerned.
(b) Until such time as the option granted herein shall have been
exercised or shall have expired or otherwise lapsed, Harrow agrees to
furnish Fleming with its consolidated financial statements as at the end of
each month (which need not be audited), which financial statements shall be
furnished within 30 days of the end of the month to which they relate. The
agreement to furnish such financial statements may be satisfied by the
delivery to Fleming of copies of such filings, if any, as Harrow makes with
the United States Securities and Exchange Commission.
8. Specific Performance. Harrow and Fleming acknowledge and agree that in
the event of any breach of this Agreement, the non-breaching party would be
irreparably
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 7
harmed and could not be made whole by monetary damages. It is accordingly
agreed that Harrow and Fleming, in addition to any other remedy to which they
may be entitled at law or in equity, shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and/or to
compel specific performance of this Agreement in any action, provided that any
such action shall take place in a state court of New York, as provided in
Section 10(h) hereof.
9. Expenses. Whether or not the transactions contemplated by this Agreement
shall be consummated, all fees and expenses incurred by any party hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses.
10. Miscellaneous.
(a) This Agreement constitutes that entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, whether oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement
may not be amended orally, but only by an instrument in writing by each of
the parties to this Agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
This Agreement and the rights granted hereunder may be transferred by
Harrow without the consent of Fleming, provided that within 30 days of the
effectuation of such transfer Harrow gives written notice thereof to
Fleming in accordance with the provisions of Section 10(i) hereof. Neither
this Agreement or any rights hereunder may be assigned or otherwise
transferred by Fleming except to a wholly owned subsidiary thereof.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to restrict Fleming, at any time after the Put Option and Call
Option
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 8
granted hereunder lapse and become no longer exercisable in accordance with
the terms hereof, from selling, assigning, transferring, conveying or
otherwise disposing of the Option Shares at any time to any person,
provided that prior notice of any such sale, assignment, transfer,
conveyance or other disposition is given to Harrow. In the event of any
such sale, assignment, transfer, conveyance or other disposition, the
rights and obligations of the parties hereunder shall cease as to the
Option Shares that are the subject thereof, and Harrow shall have the right
to close the account referred to in Section 7(a) hereof and to withdraw all
funds therefrom without penalty.
(d) Section headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(e) All representations, warranties and agreements contained herein
shall survive the Closing.
(f) This Agreement may be executed in counterparts, each of which
shall, when executed, be an original and all of which shall be deemed to be
one and the same instrument.
(g) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to the
conflicts of law principles thereof.
(h) Harrow and Fleming hereby agree that any suit, claim, action or
proceeding relating to or arising under this Agreement may (without
prejudice to the ability of either party to commence proceedings in any
other jurisdiction) be brought in a state court of New York having
competent subject matter jurisdiction over the matters set forth in this
Agreement or in a federal court sitting in New York (each a "New York
Court"). Each of Harrow and Fleming hereby consents to personal
jurisdiction in any such action brought in any such New York Court,
consents to service of process upon it in the matter set forth in Section
9(h) hereof, and waives any objection it may have to venue in any such New
York
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 9
Court or to any claim that any such New York Court is an inconvenient
forum.
(i) All notices and other communications under this Agreement shall be
in writing and delivery thereof shall be deemed to have been made either
(i) if mailed, when received, or (ii) if transmitted by hand delivery,
telegram, telex, telecopier or facsimile transmission, when transmitted to
the party entitled to receive the same, at the addresses indicated below or
at such other address as such party shall have specified by written notice
to the other parties hereto given in accordance herewith:
(i) if to Fleming, addressed to:
Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
England
Attention: Michael J.C. Watts
(ii) if to Harrow, addressed to:
Harrow Industries, Inc.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
Attention: John S. Hogan
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Alan G. Straus, Esq.
(j) Should any litigation or arbitration be commenced (including any
proceedings in a bankruptcy court) between the parties hereto or their
representatives
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 10
concerning any provision of this Agreement or the rights and duties of any
person or entity hereunder, the party prevailing in such litigation or
arbitration shall be entitled, in addition to such other relief as may be
granted, to reasonable attorneys' and arbitration fees and the costs of
litigation or arbitration.
(k) Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any
terms of this Agreement on one or more sections shall not be considered a
waiver or deprive that party of the right hereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(l) No provision in this Agreement shall constitute any person a third
party beneficiary.
(m) If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided;
however, that in the event the provisions of this Agreement dealing with
the purchase and sale of the Option Shares is held to be invalid then this
entire Agreement shall be invalidated.
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 11
If the foregoing correctly reflects the terms of our agreement, please
countersign the enclosed copy of this letter in the space provided below,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
HARROW INDUSTRIES, INC.
By:/s/
Name:
Title:
Accepted and agreed to as of the date first above written:
ROBERT FLEMING & CO. LIMITED
By: /s/ M.J.C. Watts
Name: M.J.C. Watts
Title: Director
<PAGE>
EXHIBIT 10.14
FLEMINGS
Robert Fleming & Co. Limited
25 Copthall Avenue, London EC2R 7DS
Telex 297651 Facsimile 0171 588 7210
Telephone 0171 658 5858
The Directors
Harrow Industries, Inc.
2627 East Beltline, S.E.
Grand Rapids,
MI 49546,
United States of America
14 June 1996
Dear Sirs,
Further to recent discussions, set out below are the terms under which we would
be pleased to provide a put/call option. If you find these terms acceptable then
I should be grateful if you would confirm this by signing and returning this
letter.
Option Shares: 16,000 shares of Common Stock in Harrow Industries.
Purchase Price: $64,000 (sixty thousand United States Dollars).
Option Price: $75,000 (seventy-five thousand United States Dollars)
if the shares are either put or called, in accordance
with the Call Event up to and including 31st December,
1996.
$80,000 (eighty thousand United States Dollars) if
the shares are either put or called, in accordance
with the Call Event up to and including 31st December,
1997.
The Option shall cease to have any force and effect
after the close of business on 31st December, 1997.
Call Event: A "Call Event" shall be deemed to occur if the
Consolidated Net Worth of Harrow exceeds $2,250,000.
Miscellaneous: At all times whilst the Option is in effect the
company will maintain a deposit in an amount of
$64,000 in an account held at Flemings which will
attract interest at a rate of 5%. Interest accrued
will be rolled into the deposit principal from time
to time.
All the provisions of the option agreement dated 23 April 1996 and between you
and us shall be incorporated mutatis mutandis in this letter as if John Hogan,
Gary Humphreys, and Betsy and Scott Raymond were named therein as Sellers and
the Common Stock defined therein were 16,000 and the Option Price amended to
reflect the details above.
Yours sincerely,
for and on behalf of
ROBERT FLEMING & CO. LIMITED
/s/ M.J.C. Watts
M.J.C. Watts
Director
/s/ Dudley C. Mecum, Chairman
<PAGE>
EXHIBIT 10.15
HARROW INDUSTRIES, INC.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
August 28, 1996
Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
England
Gentlemen:
Reference is made to that certain Letter Agreement, dated August 28, 1996,
by and among Philip Uzielli and the other persons and entities named on the
signature page thereof, as sellers ("Sellers"), and Robert Fleming & Co.
Limited, as buyer ("Fleming"), relating to the sale by Sellers to Fleming of (a)
an aggregate of 112,706 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of Harrow Industries, Inc., a Delaware corporation ("Harrow")
and (b) an aggregate of 80,436 shares of Junior Preferred Stock of Harrow (the
"Preferred Stock"). The shares of Common Stock so purchased by Fleming (as the
same may be adjusted, split, combined, reclassified or otherwise changed) are
hereinafter referred to as the "Common Option Shares", and the shares of
Preferred Stock so purchased by Fleming (as the same may be adjusted, split,
combined, reclassified or otherwise changed) are hereinafter referred to as the
"Preferred Option Shares"; the Common Option Shares and the Preferred Option
Shares are hereinafter referred to collectively as the "Option Shares", which
term shall include the Common Option Shares or the Preferred Option Shares
individually as the context may require.
We have agreed that upon the terms and conditions set forth in this Letter
Agreement, Harrow shall have the option to purchase from Fleming, and Fleming
shall have the option to sell to Harrow, all of the Option Shares in the
tranches set forth below (each, a
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 2
"Tranche") at the applicable Option Price (as defined below) per Tranche. Our
agreement is as follows:
1. Option of Harrow to Purchase Option Shares. Subject to the terms
and conditions of this Letter Agreement, if a Call Event (as hereinafter
defined) shall occur Harrow shall have the option (the "Call Option") to
purchase from Fleming (and, upon the exercise of such option, Fleming shall
sell to Harrow) all of the Option Shares comprising one or more Tranche at
the Applicable Option Price (as hereinafter defined). The Call Option shall
be exercisable at any time after the occurrence of a Call Event (the
"Option Exercise Period"), but shall not be exercisable later than 5:00pm,
London time, on December 31, 1999.
2. Option of Fleming to Sell Option Shares. Subject to the terms and
conditions of this Letter Agreement, upon the first occurrence of a Call
Event, Fleming shall have the option (the "Put Option") to sell to Harrow
(and, upon the exercise of such option, Harrow shall purchase from Fleming)
all of the Option Shares comprising one or more Tranche at the Applicable
Option Price. The Put Option shall be exercisable for the Option Exercise
Period, but shall not be exercisable later than 5:00pm, London time, on
December 31, 1999.
3. Manner of Exercise of Options. (a) The Call Option and the Put
Option (referred to hereinafter collectively as the "Option" or "Options")
with respect to any Tranche shall be exercisable by giving to the other
party, at the address and in the manner contemplated by Section 10(i)
hereof, written notice of the exercise thereof. Such notice shall specify
(i) the Tranche with respect to which the Call Option or the Put Option, as
the case may be, is being exercised and (ii) a date (not earlier than 10
calendar days nor later than 30 calendar days from the date of such notice)
and place for the closing (the "Closing") of the purchase and sale of the
Option Shares comprising such Tranche pursuant to the exercise of such
option. Upon the mailing of notice duly exercising the Call Option or the
Put Option, as the case may be, such option shall be deemed to have been
exer-
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 3
cised by the party giving such notice, irrespective of the actual date of
Closing. In the event that both the Call Option and the Put Option with
respect to a particular Tranche are exercised and the respective notices of
exercise shall specify different dates and/or places for the Closing, then
the notice bearing the earlier postmark shall control unless otherwise
specifically agreed to by the parties.
(b) The Call Option and the Put Option shall each be exercisable
in Tranches, as follows:
Identification of Tranche: Comprised of:
Tranche A 80,436 shares of Preferred
Stock
and
16,934 shares of Common
Stock
Tranche B 47,886 shares of Common
Stock
Tranche C 47,886 shares of Common
Stock
(c) The Call Option and the Put Option, as the case may be, may
be exercised, if at all, with respect to a single Tranche or multiple
Tranches, provided, that the Put Option or Call Option with respect to
Tranche A must be exercised prior to or simultaneously with the time,
if at all, that the Put Option or the Call Option with respect to
either Tranche B or Tranche C is exercised.
(d) At the Closing, in consideration of the sale, assignment,
transfer and delivery of the Option Shares comprising the Tranche with
respect to which the option was exercised and against delivery to
Harrow of certificates representing such Option Shares, (i) Harrow
shall deliver to Fleming an amount in cash or by certified or bank
cashier's check equal to the Option Price and (ii) Fleming shall
deliver to Harrow certificates representing the Option Shares
comprising the Tranche with respect to which the Option was exercised,
duly en-
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 4
dorsed for transfer or accompanied by duly executed stock powers.
4. Definitions.
(a) Option Price. As used herein, the term "Option Price" per
Tranche shall mean the applicable price set forth in the table below:
If Put Option or Call Op-
tion is exercised on or The Applicable Option
prior to: Price shall be:
December 31, 1996 $ 985,000
March 31, 1997 $1,007,800
June 30, 1997 $1,023,700
September 30, 1997 $1,049,000
December 31, 1997 $1,074,300
June 30, 1998 $1,124,000
December 31, 1998 $1,174,500
December 31, 1999 $1,274,800
(b) Call Event. As used herein, a "Call Event" shall be deemed to
occur if the Consolidated Net Worth of Harrow (as reflected in the
consolidated financial statements of Harrow as at the end of any
month) as at the end of any month shall be at least equal to
$2,275,000. The date of the Call Event shall be deemed to be the date
of the end of the month for which the consolidated financial
statements referred to in this paragraph 4(b) are prepared. For the
avoidance of doubt, there may be more than one Call Event.
5. Fleming's Representations and Warranties.
Fleming represents and warrants to Harrow as follows:
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 5
(a) Fleming has the full power and authority to execute, deliver
and carry out the terms and provisions of this Agreement and to
consummate the transactions contemplated hereby, and has taken all
necessary action to authorize the execution, delivery and performance
of this Agreement;
(b) Fleming is duly organized, validly existing and in good
standing as a corporation under the laws of England;
(c) this Agreement has been duly and validly authorized, executed
and delivered by Fleming and constitutes a valid and binding
obligation of Fleming, enforceable in accordance with its terms,
subject to applicable principles of equity, bankruptcy,
reorganization, insolvency, or other laws affecting the enforcement of
creditors' rights generally;
(d) At the time that the Put Option or the Call Option with
respect to a particular Tranche is exercised, and at the Closing with
respect thereto, (i) Fleming shall have taken no action that would
have caused the creation of any liens, claims, options, proxies,
voting agreements, charges or encumbrances of whatever nature against
or with respect to the Option Shares comprising such Tranche and (ii)
Fleming shall not (except as set forth herein) have disposed of any
interest in the Option Shares.
(e) the execution of this Agreement by Fleming does not, and the
performance by Fleming of its obligations hereunder will not,
constitute a violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Fleming is a party or by which
Fleming is bound or any judgment, decree or order applicable to
Fleming, nor is Fleming required to obtain the approval of any person
or organization to enter into and perform this Agreement; and
(f) neither the execution and delivery of this Agreement nor the
performance by Fleming of its
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 6
obligations hereunder will violate any provision of law applicable to
Fleming or require any consent or approval of, or filing with or
notice to any public body or authority under any provision of law
applicable to Fleming.
6. Harrow's Representations and Warranties.
Harrow represents and warrants to Fleming as follows:
(a) Harrow is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. Harrow has the full power
and authority to execute, deliver and carry out the terms and
provisions of this Agreement and consummate the transactions
contemplated hereby, and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement;
(b) this Agreement has been duly and validly authorized, executed
and delivered by Harrow and constitutes a valid and binding agreement
of Harrow, enforceable in accordance with its terms, subject to
applicable principles of equity, bankruptcy, reorganization,
insolvency or other laws affecting the enforcement of creditors,
rights generally;
(c) the execution of this Agreement by Harrow does not, and the
performance by Harrow of its obligations hereunder will not,
constitute a violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Harrow is a party or by which Harrow
is bound or any judgment, decree or order applicable to Harrow, nor is
Harrow required to obtain the approval of any person or organization
to enter into and perform this Agreement other than those which shall
have been obtained at the time this Agreement is performed;
(d) the Option Shares are duly authorized, validly issued, fully
paid and nonassessable; and
(e) neither the execution and delivery of this Agreement, nor the
performance by Harrow of its
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 7
obligations hereunder will violate any provision of law applicable to
Harrow or require any consent or approval of, or filing with or notice
to any public body or authority under any provision of law applicable
to Harrow (except for such periodic reporting requirements as may be
applicable to Harrow under the United States Securities Exchange Act
of 1934 or the rules and regulations promulgated thereunder).
7. Certain Covenants.
(a) In connection with entering into this Agreement, Harrow is
establishing an account in its name to be maintained at Fleming in
accordance with its customary practices concerning the maintenance of
cash accounts of customers and bearing interest at an annual rate of
5%, paid and compounded quarterly, and Harrow is depositing into such
account the amount of $2,800,000, representing the amount of
$933,333.33 in respect of Tranche A, $933,333.33 in respect of Tranche
B and $933,333.34 in respect of Tranche C. The amount so deposited in
respect of a particular Tranche may be withdrawn by Harrow if the
option in respect of that Tranche is exercised or, at Harrow's option,
may be applied towards the Option Price related to such Tranche as is
then exercised. Harrow agrees that if at any time Harrow fails to pay
any sums due to Fleming Fleming may set off or transfer any sum
standing to the credit of any account Harrow may have with Fleming, or
any other sums that Fleming is holding on Harrow's behalf, in or
towards satisfaction of Harrow's monies, obligations and liabilities
to Fleming under any document or agreement whatsoever. Where such
set-off or transfer requires the conversion of one currency into
anoth6r, such conversion shall be calculated at Fleming's then
prevailing spot rate of exchange for purchasing the currency
concerned.
(b) Until such time as all of the options in respect of all the
Tranches granted herein shall have been exercised or shall have
expired or otherwise lapsed, Harrow agrees to furnish Fleming with its
consolidated financial statements as at the end of each month (which
need not be audited), which financial statements
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 8
shall be furnished within 30 days of the end of the month to which
they relate. The agreement to furnish such financial statements may be
satisfied by the delivery to Fleming of copies of such filings, if
any, as Harrow makes with the United States Securities and Exchange
Commission.
8. Specific Performance. Harrow and Fleming acknowledge and agree that in
the event of any breach of this Agreement, the non-breaching party would be
irreparably harmed and could not be made whole by monetary damages. It is
accordingly agreed that Harrow and Fleming, in addition to any other remedy to
which they may be entitled at law or in equity, shall be entitled to an in
junction or injunctions to prevent breaches of the provisions of this Agreement
and/or to compel specific performance of this Agreement in any action, provided
that any such action may take place in a state court of New York, as provided in
Section 10(h) hereof.
9. Expenses. Whether or not the transactions contemplated by this Agreement
shall be consummated, all fees and expenses incurred by any party hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses.
10. Miscellaneous.
(a) This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, whether oral or written, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended orally, but only by an instrument in writing signed by each of the
parties to this Agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns. This
Agreement and the rights granted hereunder may not be transferred by Harrow
without the consent of Fleming, which consent
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 9
shall not be unreasonably withheld, provided, that (i) Fleming is provided
with evidence reasonably satisfactory to it that such a transfer is in full
compliance with all applicable laws and regulations (including, without
limitation, applicable securities laws and regulations) and (ii)
arrangements reasonably satisfactory to Fleming shall have been made with
respect to the deposit referred to in Section 7(a) hereof. In the event any
such transfer occurs, Harrow shall give written notice thereof to Fleming
in accordance with the provisions of Section 10(i) hereof within 30 days of
the effectuation of such transfer. Neither this Agreement or any rights
hereunder may be assigned or otherwise transferred by Fleming except to a
wholly owned subsidiary thereof.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to restrict Fleming, at any time after the Put Options and Call
Options granted hereunder lapse and become no longer exercisable with
respect to all Tranches in accordance with the terms hereof, from selling,
assigning, transferring, conveying or otherwise disposing of the Option
Shares at any time to any person, provided, that prior notice of any such
sale, assignment, transfer, conveyance or other disposition is given to
Harrow. In the event of any such sale, assignment, transfer, conveyance or
other disposition, the rights and obligations of the parties hereunder
shall cease as to the Option Shares that are the subject thereof, and
Harrow shall have the right to close the account referred to in Section
7(a) hereof and to withdraw all funds therefrom without penalty.
(d) Section headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(e) All representations, warranties and agreements contained herein
shall survive the Closing related to any particular Tranche.
(f) This Agreement may be executed in counterparts, each of which
shall, when executed, be
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 10
deemed to be an original and all of which shall be deemed to be one and the
same instrument.
(g) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to the
conflicts of law principles thereof.
(h) Harrow and Fleming hereby agree that any suit, claim, action or
proceeding relating to or arising under this Agreement may (without
prejudice to the ability of either party to commence proceedings in any
other jurisdiction) be brought in a state court of New York having
competent subject matter jurisdiction over the matters set forth in this
Agreement or in a federal court sitting in New York (each a "New York
Court"). Each of Harrow and Fleming hereby consents to personal
jurisdiction in any such action brought in any such New York Court,
consents to service of process upon it in the manner set forth in Section
10(i) hereof, and waives any objection it may have to venue in any such New
York Court or to any claim that any such New York Court is an inconvenient
forum.
(i) All notices and other communications under this Agreement shall be
in writing and delivery thereof shall be deemed to have been made either
(A) if mailed, when received, or (B) if transmitted by hand delivery,
telegram, telex, telecopier or facsimile transmission, when transmitted to
the party entitled to receive the same, at the addresses indicated below or
at such other address as such party shall have specified by written notice
to the other parties hereto given in accordance herewith:
(A) if to Fleming, addressed to:
Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
England
Attention: Michael J.C. Watts
<PAGE>
Robert Fleming Co. Limited
August 28, 1996
Page 11
Facsimile: (+44) 171 256 5036
Telex: 297451
(B) if to Harrow, addressed to:
Harrow Industries, Inc.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
Attention: John S. Hogan
Facsimile: (+l) 616 942 2170
with copies to:
Skadden, Arps, Slate, Meagher Flom
919 Third Avenue
New York, New York 10022
Attention: Alan G. Straus, Esq.
(j) Should any litigation or arbitration be commenced (including any
proceedings in a bankruptcy court) between the parties hereto or their
representatives concerning any provision of this Agreement or the rights
and duties of any person or entity hereunder, the party prevailing in such
litigation or arbitration shall be entitled, in addition to such other
relief as may be granted, to reasonable attorneys' and arbitration fees and
the costs of litigation or arbitration.
(k) Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more sections shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(1) No provision in this Agreement shall constitute any person a third
party beneficiary.
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 12
(m) If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that in the event the provisions of this Agreement dealing with
the purchase and sale of the Option Shares is held to be invalid then this
entire Agreement shall be invalidated.
If the foregoing correctly reflects the terms of our agreement, please
countersign the enclosed copy of this letter in the space provided below,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
HARROW INDUSTRIES, INC.
By: /s/ John S. Hogan
Name: John S. Hogan
Title: VP & CFO
Accepted and agreed to
as of the date first above
written:
ROBERT FLEMING & CO. LIMITED
By:
Name:
Title:
<PAGE>
Robert Fleming & Co. Limited
August 28, 1996
Page 12
(m) If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that in the event the provisions of this Agreement dealing with
the purchase and sale of the Option Shares is held to be invalid then this
entire Agreement shall be invalidated.
If the foregoing correctly reflects the terms of our agreement, please
countersign the enclosed copy of this letter in the space provided below,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
HARROW INDUSTRIES, INC.
By:
Name:
Title:
Accepted and agreed to
as of the date first above
written:
ROBERT FLEMING & CO. LIMITED
By /s/ M.J.C. Watts
Name: M.J.C. Watts
Title: Director
<PAGE>
EXHIBIT 10.16
HARROW INDUSTRIES, INC.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
December 31, 1996
Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
ENGLAND
Gentlemen:
Reference is made to those certain Letter Agreements, dated December 31,
1996, by and between Robert Fleming & Co. Limited, as buyer ("Fleming"), and
Axel May, on the one hand and Auda Securities GmbH on the other hand,
(collectively, "Sellers"), each relating to the sale by Sellers to Fleming of
(a) with respect to Axel May, an aggregate of 1,000 shares of Common Stock, par
value $0.01 per share (the "Common Stock"), of Harrow Industries, Inc., a
Delaware corporation ("Harrow"), and (b) with respect to Auda Securities GmbH,
an aggregate of 77,902 shares of Common Stock and 39,000 shares of the junior
preferred stock of Harrow (the "Junior Preferred"). The shares of Common Stock
so purchased by Fleming (as the same may be adjusted, split, combined,
reclassified or otherwise changed) are hereinafter referred to as the "Common
Option Shares", and the shares of Preferred Stock so purchased by Fleming (as
the same may be adjusted, split, combined, reclassified or otherwise changed)
are hereinafter referred to as the "Preferred Option Shares"; the Common Option
Shares and the Preferred Option Shares are hereinafter referred to collectively
as the "Option Shares", which term shall include the Common Option Shares or the
Preferred Option Shares individually as the context may required.
We have agreed that upon the terms and conditions set forth in this Letter
Agreement, Harrow shall have the option to purchase from Fleming, and Fleming
shall have the option to sell to Harrow, all of the Option Shares in the
tranches set forth below (each, a "Tranche") at the applicable Option Price (as
defined below) per Tranche. Our agreement is as follows:
1. Option of Harrow to Purchase Option Shares. Subject to the terms and
conditions of this Letter Agreement, if a Call Event (as hereinafter defined)
shall occur Harrow shall have the option (the "Call Option") to purchase from
Fleming (and, upon the exercise of such option, Fleming shall sell to Harrow)
all of the Option Shares comprising one or more Tranche at the applicable Option
Price (as hereinafter defined). The Call Option shall be exercisable at any time
after the occurrence of a Call Event (the "Option Exercise Period"), but shall
not be exercisable later than 5:00 p.m., London Time, on December 31, 1999. The
Call
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 2
Option may not be exercised in whole or in part until the Options dated August
8, 1996, arising out of the Agreement of that date between Fleming and Harrow,
have been extinguished, whether by exercise or by lapse of time.
2. Option of Fleming to Sell Option Shares. Subject to the terms and
conditions of this Letter Agreement, if a Call Event occurs, Fleming shall have
the option (the "Put Option") to sell to Harrow (and, upon the exercise of such
option, Harrow shall purchase from Fleming) all of the Option Shares comprising
one or more Tranche at the applicable Option Price. The Put Option shall be
exercisable for the Option Exercise Period, but shall not be exercisable later
than 5:00 p.m., London time, on December 31, 1999. The Options exercisable under
this Agreement may not be exercised in whole or in part until the Options dated
August 8, 1996 have been extinguished, whether by exercise or by lapse of time.
3. Manner of Exercise of Options.
(a) The Call Option and the Put Option (referred to hereinafter
collectively as the "Option" or "Options") with respect to any Tranche shall be
exercisable by giving to the other party, at the address and in the manner
contemplated by Section 10(i) hereof, written notice of the exercise thereof.
Such notice shall specify (i) the Tranche with respect to which the Call Option
or the Put Option, as the case may be, is being exercised and (ii) a date (not
earlier than 10 calendar days nor later than 30 calendar days from the date of
such notice) and place for the closing (the "Closing") of the purchase and sale
of the Option Shares comprising such Tranche pursuant to the exercise of such
option. Upon the mailing of notice duly exercising the Call Option or the Put
Option, as the case may be, such option shall be deemed to have been exercised
by the party giving such notice, irrespective of the actual date of Closing. In
the event that both the Call Option and the Put Option with respect to a
particular Tranche are exercised and the respective notices of exercise shall
specify different dates and/or places for the Closing, then the notice bearing
the earlier postmark shall control unless otherwise specifically agreed to by
the parties.
(b) The Call Option and the Put Option shall each be exercisable in
Tranches, as follows:
Identification of Tranche Comprised of:
Tranche A 26,301 shares of Common Stock
Tranche B 26,301 shares of Common Stock
Tranche C 26,300 shares of Common Stock
Tranche D 39,000 shares of Junior Preferred
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 3
(c) The Call Option and the Put Option, as the case may be, may be
exercised, if at all, with respect to a single Tranche or multiple Tranches,
provided, that the Put Option or Call Option with respect to Tranche D must be
exercised prior to or simultaneously with the time, if at all, that the Put
Option or the Call Option with respect to any of Tranches A, B or C is
exercised, but in no event no later than December 31, 1999.
(d) At the Closing, in consideration of the sale, assignment, transfer and
delivery of the Option Shares comprising the Tranche with respect to which the
Option was exercised and against delivery to Harrow of certificates representing
such Option Shares, (i) Harrow shall deliver to Fleming an amount in cash or by
electronic transfer of funds (or such other means of payment as the parties may
agree in writing) equal to the Option rice, and (ii) Fleming shall deliver to
Harrow certificates representing the Option Shares comprising the Tranche with
respect to which the Option was exercised, duly endorsed for transfer or
accompanied by duly executed stock powers.
4. Definitions.
Option Price. As used herein, the term "Option Price" per Tranche shall
mean the applicable price set forth in the table below:
<TABLE>
If Put Option or Call Option is The Applicable Option Price for The Applicable
exercised on or prior to: Tranches A, B or C shall be: Option Price for
Tranche D shall be:
<S> <C> <C>
March 31, 1997 N/A $290,000
June 30, 1997 $1,150,000 $360,000
September 30, 1997 $1,175,000 $360,000
December 31, 1997 $1,200,000 $360,000
June 30, 19998 $1,300,000 $360,000
December 31, 1998 $1,350,000 $360,000
December 31, 1999 $1,400,000 $360,000
</TABLE>
(a) Call Event. As used herein, a "Call Event" shall be deemed to occur if
the Consolidated Net Worth of Harrow (as reflected in the consolidated financial
statements of Harrow as at the end of any month) as at the end of any month
shall be at least equal to (i) for all periods on or prior to December 31, 1997,
$2,275,00, and (ii) thereafter,
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 4
$2,400,000. The date of the Call Event shall be deemed to be the date of the end
of the month for which the consolidated financial statements referred to in this
paragraph 4(b) are prepared. For the avoidance of doubt, there may be more than
one Call Event.
5. Fleming's Representations and Warranties.
Fleming represents and warrants to Harrow as follows:
(a) Fleming has the full power and authority to execute, deliver and carry
out the terms and provisions of this Agreement and to consummate the
transactions contemplated hereby, and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement;
(b) Fleming is duly organized, validly existing and in good standing as a
corporation under the laws of England;
(c) This Agreement has been duly and validly authorized, executed and
delivered by Fleming and constitutes a valid and binding obligation of Fleming,
enforceable in accordance with its terms, subject to applicable principles of
equity, bankruptcy, reorganization, insolvency, or other laws affecting the
enforcement of creditors' rights generally;
(d) At the time that the Put Option or the Call Option with respect to a
particular Tranche is exercised, and at the Closing with respect thereto, (i)
Fleming shall have taken no action that would have caused the creation of any
liens, claims, options, proxies, voting agreements, charges or encumbrances of
whatever nature against or with respect to the Option Shares comprising such
Tranche and (ii) Fleming shall not (except as set forth herein) have disposed of
any interest in the Option Shares;
(e) The execution of this Agreement by Fleming does not, and the
performance by Fleming of its obligations hereunder will not, constitute a
violation of, conflict with or result in a default under any contract,
commitment, agreement, understanding, arrangement or restriction of any kind to
which Fleming is a party or by which Fleming is bound or any judgment, decree or
order applicable to Fleming, nor is Fleming required to obtain the approval of
any person or organization to enter into and perform this Agreement; and
(f) Neither the execution and delivery of this Agreement nor the
performance by Fleming of its obligations hereunder will violate any provisions
of English law applicable to Fleming or require any consent or approval of, or
filing with or notice to any public body or authority under any provision of
English law applicable to Fleming.
6. Harrow's Representations and Warranties.
Harrow represents and warrants to Fleming as follows:
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 5
(a) Harrow is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Harrow has the full power and authority to
execute, deliver and carry out the terms and provisions of this Agreement and
consummate the transaction contemplated hereby, and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement;
(b) This Agreement has been duly and validly authorized, executed and
delivered by Harrow and constitutes a valid and binding agreement of Harrow,
enforceable in accordance with its terms, subject to applicable principles of
equity, bankruptcy, reorganization, insolvency or other laws affecting the
enforcement of creditors' rights generally;
(c) The execution of this Agreement by Harrow does not, and the performance
by Harrow of its obligations hereunder will not, constitute a violation of,
conflict with or result in a default under any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which Harrow is a party
or by which Harrow is bound or any judgment, decree or order applicable to
Harrow, nor is Harrow required to obtain the approval of any person or
organization to enter into and perform this Agreement other than those which
shall have been obtained at the time this Agreement is performed;
(d) The Option Shares are duly authorized, validly issued, fully paid and
nonassessable; and
(e) Neither the execution and delivery of this Agreement, nor the
performance by Harrow of its obligations hereunder will violate any provision of
law applicable to Harrow or require any consent or approval of, or filing with
or notice to any public body or authority under the provision of law applicable
to Harrow (except for such periodic reporting requirements as may be applicable
to Harrow under the United States Securities Exchange Act of 1934 or the rules
and regulation promulgated thereunder).
7. Certain Covenants.
(a) In connection with entering into this Agreement, Harrow is establishing
an account in its name to be maintained at Fleming in accordance with its
customary practices concerning the maintenance of cash accounts of customers and
bearing interest at an annual rate of 5%, paid and compounded quarterly, and
Harrow is depositing into such account the amount of $3,429,080, representing
the amount of $1,052,040 in respect of Tranche A, $1,052,040 in respect to
Tranche B, $1,052,000 in respect to Tranche C, and $273,000 in respect of
Tranche D. The amount so deposited in respect of a particular Tranche may be
withdrawn by Harrow if the Option in respect of that Tranche is exercised or, at
Harrow's option, may be applied towards the Option Price related to such Tranche
as is then exercised. Harrow agrees that if at any time Harrow fails to pay any
sums due to Fleming, Fleming may set off or transfer any sum standing to the
credit of any account Harrow may have with Fleming, or any other sums that
Fleming is holding on Harrow's behalf, in or towards satisfaction of Harrow's
monies, obligations and liabilities to Fleming under any document or agreement
whatsoever. Where such
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 6
set-off or transfer requires the conversion of one currency into another, such
conversion shall be calculated at Fleming's then prevailing spot rate of
exchange for purchasing the currency considered.
(b) Until such time as all of the Options in respect of all the Tranches
granted herein shall have been exercised or shall have expired or otherwise
lapsed, Harrow agrees to furnish Fleming with its consolidated financial
statements as at the end of each month (which need not be audited), which
financial statements shall be furnished within 30 days of the end of the month
to which they related. The agreement to furnish such financial statements may be
satisfied by the delivery to Fleming of copies of such filings, if any, as
Harrow makes with the United States Securities and Exchange Commission.
8. Specific Performance. Harrow and Fleming acknowledge and agree that in
the event of any breach of this Agreement, the non breaching party would be
irreparably harmed and could not be made whole by monetary damages. It is
accordingly agreed that Harrow and Fleming, in addition to any other remedy to
which they may be entitled at law or in equity, shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and/or to compel specific performance of this Agreement in any action,
which action may take place in a state court of New York, as provided in Section
10(h) hereof.
9. Expenses. Whether or not the transactions contemplated by this Agreement
shall be consummated, all fees and expenses incurred by any party hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses.
10. Miscellaneous.
(a) This Agreement constitutes that entire understanding of the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, whether oral or written, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended orally, but only by an instrument in writing by each of the parties to
this Agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. This Agreement and
the rights granted hereunder may not be transferred by Harrow without the
consent of Fleming, which consent shall not be unreasonably withheld, provided,
that (i) Fleming is provided with evidence reasonably satisfactory to it that
such a transfer is in full compliance with all applicable laws and regulations
(including, without limitation, applicable securities law and regulations) and
(ii) arrangements reasonably satisfactory to Fleming shall have been made with
respect to the deposit referred to in Section 7(a) hereof. In the event any such
transfer occurs, Harrow shall give written notice thereof to Fleming in
accordance with the provisions of Section 10(i) hereof, within 30 days of the
effectuation of such transfer. Neither this Agreement or any rights hereunder
may be assigned or otherwise transferred by Fleming except to a wholly owned
subsidiary thereof.
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 7
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to restrict Fleming, at any time after the Put Options and Call Options
granted hereunder lapse and become no longer exercisable with respect to all
Tranches in accordance with the terms hereof, from selling, assigning,
transferring, conveying or otherwise disposing of the Option Shares at any time
to any person, provided, that prior notice of any such sale, assignment,
transfer, conveyance or other disposition is given to Harrow. In the event of
any such sale, assignment, transfer, conveyance or other disposition, unless
there is at the relevant time a payment obligation on the part of Harrow in
respect of the exercise of the Put Option, the rights and obligations of the
parties hereunder shall cease as to the Option Shares that are the subject
thereof, and Harrow shall have the right to close the account referred to in
Section 7(a) hereof and to withdraw all funds therefrom without penalty.
(d) Section headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
(e) All representations, warranties and agreements contained herein shall
survive the Closing related to any particular Tranche.
(f) This Agreement may be executed in counterparts, each of which shall,
when executed, be an original and all of which shall be deemed to be one and the
same instrument.
(g) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to the
conflicts of law principles thereof.
(h) Harrow and Fleming hereby agree that any suit, claim, action or
proceeding relating to or arising under this Agreement may (without prejudice to
the ability of either party to commence proceedings in any other jurisdiction)
be brought in a state court of New York having competent subject matter
jurisdiction over the matters set forth in this Agreement or in a federal court
sitting in New York (each a "New York Court"). Each of Harrow and Fleming hereby
consents to personal jurisdiction in any such action brought in any such New
York Court, consents to service of process upon it in the matter set forth in
Section 10(i) hereof, and waives any objection it may have to venue in any such
New York Court or to any claim that any such New York Court is an inconvenient
forum.
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 8
(i) All notices and other communications under this Agreement shall be in
writing and delivery thereof shall be deemed to have been made either (A) if
mailed, when received, or (B) if transmitted by hand delivery, telegram, telex,
telecopier or facsimile transmission, when transmitted to the party entitled to
receive the same, at the addresses indicated below or at such other address as
such party shall have specified by written notice to the other parties hereto
given in accordance herewith:
(A) if to Fleming, addressed to:
Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
England
Attention: Michael J.C. Watts
Facsimile: (+44) 171 256 5036
Telex: 297451
(B) if to Harrow, addressed to:
Harrow Industries, Inc.
2627 East Beltline, S.E.
Grand Rapids, Michigan 49546
Attention: John S. Hogan
Facsimile (+1) 616 942 2170
with copies to:
Curtis, Mallet-Prevost, Colt & Mosle
101 Park Avenue
New York, NY 10178
Attention: Eileen P. Matthews, Esq.
Facsimile: (+1) 212 696 6184
(j) Should any litigation or arbitration be commenced (including any
proceedings in a bankruptcy court) between the parties hereto or their
representatives concerning any provision of this Agreement or the rights and
duties of any person or entity hereunder, the party prevailing in such
litigation or arbitration shall be entitled, in addition to such other relief as
may be granted, to reasonable attorneys' and arbitration fees and the costs of
litigation or arbitration.
<PAGE>
Robert Fleming & Co. Limited
December 31, 1996
Page 8
(k) Any waiver by any party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any terms of this Agreement on one
or more sections shall not be considered a waiver or deprive that party of the
right hereafter to insist upon strict adherence to that term or any other term
of this Agreement.
(l) No provision in this Agreement shall constitute any person a third
party beneficiary.
(m) If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated; provided; however, that in the
event the provisions of this Agreement dealing with the purchase and sale of the
Option Shares is held to be invalid then this entire Agreement shall be
invalidated.
If the foregoing correctly reflects the terms of our agreement, please
countersign the enclosed copy of this letter in the space provided below,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
HARROW INDUSTRIES, INC.
By: /s/John S. Hogan
Name: John S. Hogan
Title: VP & CFO
Accepted and agreed to as of the
date first above written:
ROBERT FLEMING & CO. LIMITED
By: /s/ I.M. Taylor
Name: I.M. Taylor
Title:
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Exhibit 11--Statement Regarding Computation of Per Share Earnings
<TABLE>
Fiscal year ended
December 1, December 3, November 27,
1996 1995 1994
<S> <C> <C> <C>
Primary and fully diluted
Weighted average shares outstanding . 1,074,046 1,100,000 1,096,671
Net earnings ........................ $ 5,315,000 $ 3,403,000 $ 1,615,000
Preferred stock dividend requirements (200,000) (200,000) (200,000)
Total ............................... $ 5,115,000 $ 3,203,000 $ 1,415,000
Per share amount .................... $ 4.76 $ 2.91 $ 1.29
</TABLE>
<PAGE>
Harrow Industries, Inc. and Subsidiaries
Exhibit 12--Statement Regarding Computation of Ratio of Earnings
to Fixed Charges
<TABLE>
Fiscal year ended
December 1, December 3, November 27, November 28, November 29,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Earnings before income
taxes .................... $ 8,845,000 $ 4,595,000 $ 2,591,000 $ 182,000 $ 473,000
Fixed charges:
Interest expense ......... 5,962,000 6,391,000 5,980,000 6,145,000 6,438,000
Amortization of deferred
financing costs ....... 436,000 226,000 333,000 343,000 350,000
Interest portion of rental
expense ............... 757,000 709,000 687,000 621,000 573,000
Total fixed charges ......... 7,155,000 7,326,000 7,000,000 7,109,000 7,361,000
Earnings .................... $16,000,000 $11,921,000 $ 9,591,000 $ 7,291,000 $ 7,834,000
Ratio of earnings to fixed .. 2.24x 1.63x 1.37x 1.03x 1.06x
charges
</TABLE>
<PAGE>
